Strategic Planning: How to Detect and Delete Cash Drains - dummies

Strategic Planning: How to Detect and Delete Cash Drains

By Erica Olsen

Most organizations intrinsically know where the drains are. Plugging the drains is more about breaking down institutional barriers than it is about implementing the change itself. Brace yourself for the hard conversations and tough choices, but know that you’ll be rewarded in the long run.

Check out the following ways to detect cash drains and improve your margins:

  • Fire loser customers. Remember that you’re in business to make money. Customers that are costing you money need to be evaluated. The reality is that some customers aren’t worth having, even though you spent time and money getting them. Examples of these types of customers include:

    • Those who take up too much of your time compared with the profits they generate

    • Those who consistently fail to pay on time

    • Those who always want more but don’t want to pay more

  • Market wisely. No matter what, marketing can be expensive. Whether you’re spending money on a TV campaign or paying your employee’s salary while she attends a networking event, you need to make sure that your marketing dollars are well spent. With marketing dollars, you need a tangible ROI.

    If your marketing strategy can’t justify the cost, replace the plan with something better or stop what you’re doing and save the money until you can figure out a better solution.

  • Break even. Another common cash drain for service firms is inadvertently charging a lower billable rate than your hourly breakeven rate. The breakeven rate is the cost per hour to keep your doors open. If you’re selling your time, which is your inventory, for less than your cost of overhead, you have a negative profit margin.

  • Keep a “Because we’ve always done it that way” list. Do you ever wonder why you do something a certain way? If the answer is, “Because we’ve always done it that way,” you may have found a time- and money-waster in your business. If you find yourself saying “Because we’ve always done it that way,” about a process, put the process on the list to be evaluated.

    One of the biggest culprits is producing reports. Check to make sure that the reports you produce are actually being used. Look for other areas where changes can be made or that can be completely eliminated in order to save money.