October 13th, 2009 09:06 EST
Look Out Overhead!
Years ago, my partner at the time, Drew, and I were asked to go to the office of a prospect who inquired about our firm helping them promote their computer business.
The company was located in the Philadelphia suburbs in a large building that had been an elementary school. Drew and I figured that our prospect probably occupied a portion of the building and that other companies were housed there as well. As we entered we were shocked at what we saw. A huge banner hung from the ceiling, just beyond the entrance, that welcomed all to XYZ Computer`s grand new offices! I looked at Drew and he at me, both of us expressing bewilderment. After all, this was a start-up and I may add, much before the windfall of the .com 90`s.
We were directed into the CEO/President`s office. He was a big man who enjoyed the grandeur and status of his digs. He had the largest desk I have ever seen to go along with a huge office with a full-sized fountain (not one of those tabletop versions that mellow out the frantic business beast) surrounded by a rock garden that one would see on someone`s suburban landscape. Leather couches and chairs abounded.
The CEO/President greeted us and asked us to have a seat. He informed us that the company had opened its doors about two months before our visit and he wondered if we had seen his full-page advertisements in the newspapers.
We asked to see the ads and for some information as to what newspapers they had appeared. As he began to tell us where the ads ran we started to realize that he had placed many of them in the wrong publications for his audience. We were amazed. No wonder there were very few customers in the store " even though the place was outfitted to the hilt.
It soon became evident that what we had on our hands was a corporate ego gone mad. As we left I turned to Drew and said, That guy`s got a chapter 11 office. " Drew nodded in agreement. Within the year the company was out of business.
Too much overhead will eventually either kill a business or cause it to restructure itself and uncontrolled overhead can stop it before it really gets going.
There are things a businessperson can do to check their expenditures before they begin. It takes quite a bit of self-control for some types but it`s worth it. Here are some common situations to ponder.
· Take a long look at your ego. Is it controlling you and your business or are you using it as a tool to grow your business
· Don`t get larger offices than you need. You can always move or expand your existing space. Paying for more than you need because you think it looks good makes your landlord very happy and your revenues smaller.
· Don`t hire more people than you need. Although I am a great proponent of delegation, so you as a businessperson can grow, there should be a method and plan to your growth. There may be times when you will hire someone to help build your business within the structure of your plan, you may even pay them more than you make with the understanding that your payoff will come later. However hiring just to have a larger, more professional looking " staff could signal ruination not far down the road.
· Don`t fall into that, now that I`m a business owner or executive I should have a better car. " This one is extremely prevalent. Cars come later. Get the business consistent first and make sure it shows consistency over an extended period.
· Take less. Invest more. The more you invest back into the basic needs of your business the more money, security and equity you`ll have in the long run.
Being conservative for the financial good of your company can help you get through the down times. It`s those monetary reserves that help pay the bills when your sales base shrinks. It also enables you to stay on course and plan for the upturn.
There is another benefit to the fiscal conservation of funds from a business and personal perspective as it relates to the business owner. I recently met a gentleman who, after many years of struggling in business found his retail enterprise taking off. He was flush with cash. Not long after the money started to flow he bought a new house, not just any house but a nice, new, big house. In addition he purchased himself a substantial luxury automobile and decided to expand his office space (even though there was no apparent need). He even opened a second location.
In my conversations with him he began to reveal that he had over extended himself and now he needed more cash than he was generating from his initial location. The second store was draining him. His mortgage and car payments were squeezing him and although he seemed so proud of his expanded office, I could see that he wished he had never signed the lease.
If only he had reinvested, written and stuck to a strategy for growth, done a cash flow and needs assessment and not been blinded by the cash.
This fellow has, fortunately, gotten himself some solid advisors who are leading him in the right direction. He understands what got him into the situation he`s in, both from a good (his ability to build a solid retail location) and bad (his lack of fiscal control). I believe that, in the end things will straighten out and he`ll be fine however, not without some pain on his part. At least his didn`t rent an entire vacant elementary school!
When it comes to growing your business take a full inventory of your needs and wants. List them down two sides of the same piece of paper. As your business grows cross of each need as it gets accomplished. After your needs list has been completely crossed off take a look at your wants list. Many of the items may seem unnecessary now. Some may still remain. Others may be added. The freedom you have achieved by taking care of your needs enables you to move to and understand your wants more clearly and hopefully attain them with a new and controlled perspective.
Dan Goldberg is a keynote speaker and the President of Dan Goldberg Consulting, L.L.C. a training, coaching and business development firm located in the Philadelphia, PA area. He is the author of the book Lighten Up and Lead, " co-author (with Don Martin) of the book The Entrepreneur`s Guide to Successful Leadership, " and author of The Six Steps To Solid Sales Success " and The Seven Elements of Successful Management " programs and the audio tape Growing A Successful Business ". You can contact him at email@example.com, visit his website at www.dangoldberg.com or reach him at (215) 233-5352