 "The difference between something good and something great is attention to detail.” – Charles Swindoll
An alien spacecraft lands near a mobile home park (as alien spacecraft are prone to do) and abducts an earthling. As the extraterrestrials examine the human, they’re fascinated that one toe on each foot is much bigger than the other four. Why aren’t we earthlings similarly surprised when we see another person’s foot for the first time? Because it’s the norm. Like water to a fish. Ho-hum. And so it is with many of the line items on your financial statements. We take some things for granted, and look right past them. Sometimes, it’s familiarity. Maybe you’re used to glossing over training expense because you always spend less than you budgeted. Sometimes it’s your perceived lack of influence over certain numbers. No matter what you’ve tried, that one number “is what it is.” One of the first steps to improving your financial results is to start looking at each line item as if you were seeing it for the first time. Letting them become ho-hum is a formula for decline. Of course, every section of your income statement is an opportunity for improvement, but here we’ll focus on your Cost of Goods Sold, or COGS. COGS is defined as the direct costs that go into creating the products or services that a company sells. For example, an automaker’s COGS would include the material costs that go into making the car plus the labor costs used to build it. The other costs that don’t directly go into producing cars, like office supplies, support staff and utilities, are considered Overhead Expenses … another topic for another day. If you’re a service-only business and don’t sell goods, you probably call it Cost of Sales, or COS. Even if your P&L just shows revenue less expenses, and doesn’t include a COS section, you really do have COS … it’s the direct labor cost associated with your billable staff. Some great reasons to mine your COGS for improvement opportunities:
Do a detailed analysis of every line item in your COGS, and you might be rewarded with an out-of-this-world profit improvement. Unless you’ve just been released from a long incarceration in a Turkish prison, you know that the concept of working on your business – rather than in it – was popularized by Michael Gerber in his mega-hit book, “The E-Myth Revisited.”
Gerber made many great points (which explains the “mega-hit” part), but the on/in distinction is the big take-away for most readers. Here’s an excerpt: “Go to work on your business rather than in it, and ask yourself the following questions:
Well, one of Gerber’s main themes is the idea of systems. Systemize everything. Manage systems, not people. It’s terrific advice, of course, but many small business owners still struggle, even after reading E-Myth. What’s a system? What systems are needed? Where do you start? My answer: Anything can be a system. A system is simply a way to avoid NOT making things up as you go along.
Simple? Yep. Like I said, anything can be a system. Not all systems are this simple, but you get the idea. Beyond creating and installing systems, how else can you work on your business? Perhaps more to the point, how can you find the time to work on your business when you’re consumed by it all day, every day? Here’s a way to let the ideas and time find you: Constantly be in “improvement opportunity mode.” Every time an error or crisis occurs, stop. Avoid the temptation to put out the fire and get back to work. Analyze what just happened. Was it human error, or could a system – even a simple one – prevent future recurrence? If so, create it right then and there. In many cases, you can do this sort of “post-mortem” work in a matter of minutes. Planning is a great way to work on your business. As an early riser, my favorite planning time is early Sunday mornings, before my wife gets up. And business trips can turn into mini planning retreats … if you keep the TV turned off in your room. I know a business owner who tells me he likes thinking about his business while on his riding mower. Some folks really embrace this concept by taking their teams on annual out-of-town planning retreats. Exactly what you do is less important than developing the habit. Start working ON your business today. “Do it. Do it now!” – Arnold Schwarzenegger |
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