How To Reduce Your Expenses, Increase Your Cash & Create The Profit Wedge In Your Business
Lever 7: Reduce Expenses & Cogs
Lever number seven is reduce expenses and COGS. So COGS means Cost of Good Sold. If you’re selling Widgets, how do you reduce the expenses of those Widgets when you’re buying them? You want to know this because it is actually the fastest way to double the profitability of nearly any business.
Actually, the truth is the fastest way to double the profitability of nearly any business is to reduce expenses by 10% to 15%. If you think about it like this often what happens is, when you increase your income, increase your revenue, your expenses might increase along with it. But if you can reduce your cost, your expenses by 10% to 15% you’re actually adding profit through your whole business. It’s not really that sexy and people don’t really focus on it that much but it can have just such a massive difference because this lever is all about pure profit.
There’s that concept called the profit wedge which is how do we keep ourselves growing but how do we make our expenses go down so that we get a bigger gap between income and expenses? It just makes so, so much difference and I wish more people, and I hope you take something from this and not only “know it” but also implement it in your business.
Lever 8 & 9: Reduce Receivable Days + Increase Payable Days
Okay, so the next two levers, when working together, can have a dramatic effect we’ve found on the amount of cash in your actual bank account without even increasing your sales at all. So, very very powerful these two together. This lever is about reducing your receivable days. So what this is talking about is when businesses and people owe you money, claiming that money much much faster.
We teach six proven strategies for reducing your receivable days. There are one or two that are really, really stand-out that are just so easy. It’s one of those things where once you’ve seen it you’ll go, “Oh, damn, that’s so obvious.” You’ll be thinking “Why wasn’t I always doing that?” I’ve got this saying, “To know and not to do is not to know.” Reducing Receivable Days is a very, very powerful lever. But not on its own. It’s got to be used with the next lever which is lever nine, Increase Payable Days.
Before jumping to lever nine I think it’s important to add that cash flow really is the lifeblood of the business. Without cash, the business can die even if you’re promised a whole bunch of other money. So it’s very very important to get that in. You want it sitting in your bank account rather than someone else’s or another business’ bank account. Imagine how different it you will feel when your bank account starts to rise.
We’ve had some of our clients in business that we’ve taught this to that are now saying that their cash in the bank has risen between $30,000 and $100,000 just between these few Financial IQ levers. Not by changing anything in their styles of marketing space, but just with the Financial IQ levers.
Let’s now work into our next financial IQ lever which is our second last one, Increased Payable Days. This is talking about accounts payable. This is when your organisation, your company, owe money to other businesses. If you can slow that down as well as getting paid faster, what it does is, it frees up the amount of cash that’s in your bank.
This is like a one-two punch, and that’s why I love these because they work so well together. It’s so important to get these two right. As I said above, we teach six strategies for each one and it’s really about choosing one, two or three that are going to work best for you to be able to increase the cash in your business.
Lever 10: Reduce Inventory Days
Last but not least, we need to look at Reducing Inventory Days. This is not relevant to every business, but if you are holding stock it is very very relevant. What we’re talking about here is hold less stock or move your stocker faster. As you may know, when you are holding stock you can be tying up so much cash that you are always cash poor just in your stock and inventory.
Some of the businesses that we’ve taught this to has said this has ended up being their most powerful lever. It does really depend on what type of business you are but if you’re holding stock, you will begin to love this lever because it will end up freeing up the amount of cash that you have.