Thursday, February 24, 2011

Controlling Costs - in your business - in your home.

Having watched and read with great frustration the arguing about the new budget proposal by the Obama administration, I cannot help but provide some perspective which might be helpful for our government (if they'd only listen to me!), but hopefully very helpful for you in your business or in your household.
There is one rule: Live within your means.  This may seem simple, but over and over I see our government and individuals and business leaders struggling to do this...if they even try.  What do I really mean?  I mean, DO NOT SPEND MORE THAN TO TAKE IN!  Again, common sense, but not so common.  Obama's new budget adds almost $9.4 Trillion to the National debt over the next 10 years, and more than $1.1 Trillion next year alone.  What this means is that next year, the U.S. Federal Government will borrow $1.10 out of $3.74 it spends!
So, I am the first one to recognize and acknowledge that investment spending - Capital spending - is an absolute necessity and an important part of every business and household.  Leveraging your money can be a very important way of building wealth.  For your business, making capital investments is a way of utilizing your borrowing power to invest for the future.  For your household, it has historically made sense to borrow money in order to purchase property that will appreciate and grow in value.  Some might argue this has always been risky, but few times in our brief history has the idea of property appreciation been more risky than today.
So, how can you make this change? I'll give you five quick ways:
1) Review all of your spending - put everything on the table, even those sacred cows like your candy bar runs, or your Sunday dinners out.
2) Prioritize and look for ways to delay spending.  Maybe you can go another month without a pair of new shoes.  Maybe your business just can't afford to hire another engineer, or administrative assistant at this time.
3) Invest in productivity improvements.  For your business, this might mean finding ways to do more with the same.  Automation can be a huge benefit and might be worth an investment.  What is the payback?  Can you reduce your monthly fixed costs by making the investment?   For your home you might want to think about doing your bills on-line.  This has saved us many dollars in stamps.  You might also look at low cost sourcing.  For your home, this might mean going to Aldi or another discount store.  For your business, it might mean consolidating your parts purchases with just a few suppliers to gain volume increases.
4) Conserve cash.  For your business, this means reducing inventory - move to just in time manufacturing.  Delay large investments that show little likelihood of short-term gain.  For your home, this might mean waiting another 6 months before buying a new car, or not taking an Spring vacation, but instead scheduling a summer vacation now when the prices are still low.  If only our government would think about this.  Maybe they could delay cost of living increases.
5) Rethink your entire approach to spending.  Building cash reservces in an absolute necessity.  If you can retire debt and move from a credit basis to a cash basis for your business or your home, you will reap huge benefits.  For your home, this means saving until you have enough to buy with cash.  If you do this, the interest savings alone will be significant.  Dave Ramsey is one of my favorites.  The Total Money Makeover is one good resource.

Yon can improve your business and get your personal/family spending under control.  You will then have the authority and the evidence to speak up to our government officials and hold them to the same sort of fiscally responsible behavior.

Best to you,

1 comment :

  1. Enjoying every one of your blogs. You've got my mind thinking! Thanks John