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Home My Blog A Note From Larry A Note from Larry: Hidden Gold

A Note from Larry: Hidden Gold

Author: Larry Chester

Finding Hidden Gold

Everybody is looking for hidden gold. As an entrepreneur and someone who runs a business, the place to look for hidden gold is on your financial statements. It’s not a matter of just looking at your income statement to see where your sales and what your cost of goods sold is, but the hidden gold is in the subsidiary reports. It’s in the information that’s hidden in your IT system, that’s generating information that you’re probably not looking at, or are not asking for.

If you take a look at just a couple of categories, it will allow you to see the information in greater detail and you’ll be able to make some decisions that can change profitability. For instance, if you’re looking at cost of goods sold, it’s not just a matter of looking at the cost of materials, but looking in detail at the scrap, and what’s causing that scrap.

What to look for in your subsidiary reports

If you’re looking at your staff time, if you’re a service company, take a look at the unutilized staff time that you have. When are your people working? And when are they just sitting at their desks because they don’t have things to do? Take a look at your freight cost and determine what you’re spending, for freight going out or for freight coming back in. Take a look at the breakdown in manufacturing processes, and understand what that’s costing you in terms of efficiency, and terms of staff waiting for the machine to be back up and running again. When you look at payroll, take a look at revenue versus your dollar cost of payroll, and track that over time to determine whether your staff is being more efficient or less efficient than they had previously. That ratio of payroll dollars to revenue is going to tell you something about what you’re spending on staff and what you’re gaining from them. And take a look at over time, because overtime is time and a half, and that’s certainly a greater cost of getting things done.

So the question is: Is your staff working efficiently, or are they in a position where you’re forced to hire more staff because things aren’t going as you had planned?

When you take a look at overhead expenses, it’s not just a matter of looking at rent and utilities, but also taking a look at what’s happening on your credit card bills. What are your highest expense categories? Who is holding those credit cards and making those expenditures? What are you seeing in terms of cell phone expenses? Are your costs well contained in terms of cell phone costs? And outside maintenance, what additional services are you hiring, either on a fixed retainer basis or on an hourly basis, to maintain equipment and facilities that you own? And not only that but take a look at software and computer expense.

I was working for a company that literally had 40 employees, and they were spending $1,500 a month on miscellaneous software. At $10 or $20 a month per software package, that can add up real quick. The hidden gold that you’re going to find is in the subsidiary reports and the detail that is hidden in your IT system. Don’t be afraid to ask your IT department if you can get further information to allow you to find profits that you wouldn’t have seen otherwise.

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