International Art Materials Association

   eNEWS:  June 7, 2017 

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Identifying Expenses that put a Drag on Your Profitability

   by Tom Shay

You’ve probably heard the old business advice: “You can’t save your way to profit”.  This saying simply implies that if you are not producing sales, no amount of expense control can make you profitable.

That doesn’t mean, however, that you shouldn’t always being working to keep your expenses in order.  A big benefit of working on expenses is that often the adjustment of an expense can be permanent.

When it comes to managing your expenses, there is a methodology that will get you started in finding places where you can save.

Start with your income statement or profit / loss statement. Since some expenses occur only once a year, you need a full year’s statement so that all of the rows of information will include dollar amounts.

This exercise will begin with the first row in the expense section and will continue row by row until we have looked at every expense your business had for the year.

To the left of the name of an expense, you are going to enter either the letter F or letter V. These initials represent “fixed expenses” and “variable expenses”.

Variable costs are those costs that vary throughout the year like your utility bills or perhaps payroll; Fixed costs are such items as rent, insurance and office supplies, which tend to remain the same regardless of production output.

Once you’ve assigned an F or V to every expenses line you are ready for the second part of the exercise – assigning each expense with a C or U -- controllable or uncontrollable expense.

Controllable expenses can be such costs as raw materials, labor, and other overheads deemed controllable by management. A certain portion of fixed costs can also be considered controllable.

Uncontrollable costs are business expenses that the manager doesn't have direct power over. The expense has to happen. A good example of an uncontrollable cost is insurance, rent.

Once you’ve completed this process every expense now has a C or U next to it in addition to the F or V.

You should now look for the expenses with a combination of UF - “Uncontrollable Fixed”. By your own definition, you have determined there is nothing that can be done about these lines of expense.

All of the other expenses, in part or in whole, can be either eliminated or adjusted. Experience has shown that when you approach the expense section of the income statement with a cold and impersonal look such as this four-letter exercise, you will quickly get to areas of your business that may be creating too much drag on your profitability.

And once you have gone through this exercise of identification and made the necessary changes, you get back to seeing what we can do to increase revenue and margins.

Tom Shay is a fourth-generation small business owner, author, columnist, coach and speaker who has authored several training manuals for retailers that can be found in the Resources section of the NAMTA website – His knowledge of small business marketing, business strategy, staffing, and financial management have provided small business owners with the help necessary to increase their profits plus build their business for the future.

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More than 72% of attendees at Art Materials World 2017 in Salt Lake City said they visited the CAMEX portion of the show floor.

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Member News

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Download more information.    See more pictures.

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(CPSA), will hold its 25th Annual Convention in July 2017 in Rockville, Maryland. Fun and educational. Spend time with fellow artists, attend workshops, and much more!
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