Podcast 30 Transcript: Tracking costs to reduce expenses

Written by Ian Portsmouth

Ian: Welcome to the Business Coach Podcast, an advice-oriented series that tackles the hot issues and opportunities facing Canada’s small businesses. I’m your host, Ian Portsmouth, the Editor of PROFIT Magazine and we’ve developed this podcast in cooperation with BMO Bank of Montreal.

Well, companies across the business spectrum are beginning to feel the squeeze of a soft U.S. economy and the rising price of oil. But as every business owner knows, every dollar your business saves drops straight to the bottom line. What many entrepreneurs might not realize is just how much money they can save in their companies and how easy it is to reduce those expenses. Here to discuss the opportunities in cost control is Ross Pinkerton, president of ERA Canada, a cost-reduction consultancy that is headquartered in Toronto with offices from Quebec to British Columbia. Ross, welcome to the Business Coach.

Ross: Thank you Ian.

Ian: So how much money can Canada’s small businesses be saving with a little bit of effort?

Ross: Well, it depends a lot on the industry and also the weighting of the various cost input for each company. But the areas that we are involved in which is indirect and overhead cost areas, we typically save our clients somewhere in the range of 20 per cent and that can make a significant contribution to their bottom line, often 1 or 2 per cent, sometimes more on a revenue. Other areas such as direct cost can be harder to achieve savings of that magnitude but obviously, the value of expenditure is high typically and so you can still add significantly to the bottom line. And the key thing it does not take that much effort. It is more a question I think of knowledge and expertise and access to information.

Ian: So that was a staggering statistic you mentioned that you can save companies up to 20 per cent so companies are missing these opportunities due to information gaps, etcetera. Is there anything else that explains why people tend to think that their companies are pretty much running efficiently?

Ross: Well I think that most companies concentrate on revenue generation, that tends to be the focus, and rightly so. But because of the lack of time and resources and perhaps internal expertise, cost control or cost reduction can often times be neglected or at least relegated to a lower priority. And when that happens, it does not become such a critical activity for staff and perhaps the culture becomes one of “let’s not rock the boat, let’s just stick with the status quo”. It depends on the organization; some of course are famous for being vigilant when it comes to cost control. You know, it depends a lot on resources and as I said internal expertise, access to information and the corporate culture.

Ian: Now, let’s for the sake of examples, say that I am a small business owner, where am I going to be shocked to find the biggest waste in the my business?

Ross: Well any areas, we define waste as any expenditure which does not add value. In other words, if you are paying a dollar and you need not be paying that dollar, it is not adding value. So any excess expenditure means paying for things you don’t use or paying more than you need to a supplier. So, there are many areas that we find significant savings in. The areas like telecommunications where it is not unusual to pay for capacity or services that are not used, employee benefits, it is not unusual to pay for benefits that are not used by employees or are used by very few employees, so in effect, we are over-insured. Insurance itself is another area where we become complacent and we stay with the same provider for years and years and years without really conducting a review for what we are insured for, what coverage we have and also shopping around to see if we can get a better deal. Office equipment, printing, freight, courier, janitorial, travel, bank fees, the list is almost endless. And one of the things obviously over the years Ian I have been involved with in this industry is that there is a specialist in every area. I am absolutely amazed how much expertise there is out there in such a narrow little field. And it’s that expertise that really drives costs down. Having that knowledge of both the market and technology in some cases can help small and large businesses reduce their costs effectively.

Ian: Now that was a long list of areas of business in which companies typically can find cost savings. Is there any simple tactic that you can employ to reduce costs in multiple areas of your business at the same time?

Ross: My personal favorite is simply saying no to supplier price increases, many businessmen and employees will possibly accept the proposed price increase without questioning it. And of course suppliers use this tactic to improve their margins and sometimes they do it on the basis where 75 per cent of their client base will accept this without question. For those who don’t, the other 25 per cent, they get into a negotiation situation. So, as I said, that’s my personal favorite, one I would recommend. The other thing is to instill a cost-conscious culture in the company whereby employees regard every dollar as if it was their own and spend it accordingly.

Ian: How do you ingrain that culture, how do you get people to think about cost control?

Ross: Well, I think the first thing really is for the owner or executive to lead by example. It is pretty hard to ask employees to do things if you weren’t doing them yourself or don’t do them yourself. It is even harder if you say one thing and you do another. So I think the key thing really is to portray and reinforce that controlling cost is a positive strategy, not a negative strategy. Often when employees hear the term cost control or cost reduction, they immediately feel their job is in jeopardy. And we need to get the message across that layoffs or downsizing or reducing hours is the last resort, not something we want to be doing not high on the list. And the priority is to make sure that every dollar spent is a dollar well spent. And if we can get their buy-in and think it’s a good strategy, and it is not something we need to be smoking mirrors to get the message across then I think we have a much better chance of getting their support and then, of course by having their support, you’re going to see the behavior and results change. If you can add an incentive program or recognition program of some sort, or reward them for their behaviors and activities that you want to encourage, that will close the loop altogether and you can change the culture. But then again, that has to be reinforced, that has to be reminded from your own actions through constant reminders if you like either it is verbally or by action that cost control is important to this company, and it is for all of our benefit.

Ian: So Ross, a lot of companies out there and entrepreneurs out there are very busy but of course they want to reduce their costs, they might want to get some help. Can you tell us very quickly what kinds of services ERA Canada offers?

Ross: Well, our main service is cost review with a view to reducing cost and we have a team of cost reduction specialists so they can bring their industry experience and knowledge of the market place, knowledge of suppliers to the client. The client benefits because we now have a leveled plain field and we can negotiate with suppliers on the client’s behalf, we can set up programs, we can introduce technology, new processes that would mean every dollar they spend in that particular category is optimized. We typically do this on a success fee basis but depending on the client, some prefer to work on a fee-for-service basis. Typically that process takes about 120 days from engagement to implementation and following that, we will implement and monitor the results for as many years as a client likes us to be around. And of course, through that monitoring, we do insure that suppliers and staff comply with the program that has been introduced, the solutions that have been implemented. And that way we maintain costs of the new reduced levels.

Ian: Ross, it sounds like a fascinating business to be in. Thank you for your time today.

Ross: You’re welcome.

Ian: Ross Pinkerton is the president of ERA Canada, a cost reduction consultancy headquartered in Toronto.

Well, that’s it for another episode of Business Coach Podcast. You can download other installments in the series from BMO.com, profitguide.com or iTunes. As always, I’d love to hear your feedback and suggestions for future topics which you can send to feedback@bmo.com.

Until next time, I am Ian Portsmouth, the Editor at PROFIT Magazine, wishing you continued success.

Originally appeared on PROFITguide.com