In the game of business, making sales is playing offense. If you play offense well enough, you can make a few mistakes on defense and still win the game. If your sales are down, playing defense becomes more important.
In business, defense is controlling costs. The business owners I know who make money every month are willing to play defense.
There is no substitute for sales. You need a minimum to cover essential expenses. What is that minimum? That's what budgeting is for - so dust off your budgets. What will you need between now and the end of the year to be profitable? What do you need every month? Set goals for next year, too, for sales and expenses. And take a look at your defense.
The biggest expense
Look over your income statement. People are the big expense, as they should be. The idea in business is to make money for yourself, your family and the wonderful people who work with you. People help you make money. You couldn't be in business - or be of service - without them.
Keeping score allows you to see the effect of your efforts. Sell stuff for more than it costs and you make a profit. Collect the money now and you keep the cash flowing. No big mysteries here. Business is easy. By paying attention to the financials, you can make better decisions about managing your labor expenses. If sales are down, and you continue to pay the same team as when sales are up, your total gross wages as a percentage of sales will spike. It's your key defensive statistic. Watch this percentage and manage it if you want to make money every month.
Track these numbers weekly, and by the end of the month, eyeball them daily:
• Total gross wages as a percentage of sales; and
• Field gross wages as a percentage of sales.
Consider these goals: total gross wages for all team members at 30 percent to 33 percent of sales; and total field gross wages in the 18 percent to 20 percent range. Don't include payroll taxes in the gross wage numbers.
Note that your budget numbers are senior to my suggestions or any kind of industry average - our industry averages aren't so hot. Crunch the numbers, dollars and percentages on paper and in Excel first. Pull your target goals from there.
If field gross wages are in line with your goal, and total gross wages are too high, the problem may be too many people on the inside. Note that your salary is included, too. There are no judgments here - just pay attention. You can make the percentages come back into line by playing offense: better sales, raising your prices, improved marketing and sales techniques. Or, do you need to play defense?
Time for tough calls
It's fourth and two and the other team has the ball.
When you are losing money, you may have to make some tough calls, like sending someone home. Send people home when the sales don't support the labor. You could ask someone to stay close to the phone and jump back in if a call comes in. The point is to manage your labor expenses.
As the leader of your team, you are expected to make the tough calls. Yes, it is more fun to play the game when your offense has created some margin for error. Champions take the field and do what is necessary to win the game. Sometimes you fail. Sometimes you pull off the victory.
Business is pretty simple. Focus on the few things that make the most difference. Be willing to play offense - and defense.Ellen Rohr is an author and business consultant who offers systems for getting focused and organized, making money and having fun in business. Her latest book is "The Bare Bones Biz Plan." She can be reached at
ellen@barebonesbiz.com.
