It’s Spring: Time to Clean House (Financially)
You know how, over time, you naturally accumulate more stuff?
Gifts you didn’t ask for. Borrowed items that become yours. Books, tools, devices…things you might use every so often. Or maybe you haven’t used at all…but maybe, one day, you would?
This inevitable accumulation is probably why spring cleaning was invented.
And it happens in your business, too.
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I launched this newsletter just weeks before COVID hit. And our early issues (which we continued weekly, and sometimes daily) detailed the real-time problems we were solving with clients in the face of a massive health and economic crisis.
One of the first measures we took was an intensive overhaul of expenses.
The pre-COVID years were good to many companies, and when money flows freely, we tend to get lazy. Investment in any tool seems justified. If it will help us grow, or save us a few minutes, or do something cool that we can’t quite figure out how to use yet—but might one day—we sign right up.
A similar phenomenon happens with people. When we anticipate growth, we hire ahead of revenue. We stop tracking time; we don’t worry about inefficiency. We take our eye off the ball.
Before we know it, we’ve got a business that’s overstuffed. Full of incremental expenses, each justified on their own but collectively, not delivering enough benefit.
Extra spending creeps in quietly. The challenge is that you only tend to see it when there’s a problem: economic uncertainty, for example. Or AI disruption.
By then, you’re in the position many companies are in now: wondering why their profitability is off, feeling squeezed by their operating expenses when revenue dips, and not sure how to quickly unwind from their software and subscriptions and other financial commitments.
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The right way to do this is through zero-based budgeting. Every year, when you build your budget in Q3/Q4, you start with zero assumptions. No expense is included unless it justifies its place.
This process is tedious, and it will require a significant commitment—from you. It can’t be simply handed off to your CFO without context about what really matters. You’ll need to investigate and interrogate to figure out which expenses are good investments for the company and which ones are just extra stuff crammed onto the shelves.
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The thing about COVID is that it acted like a forcing function for leaders.
Many of the changes I made with clients weren’t directly related to the effects of the pandemic. They were preparing companies to weather a storm of unknown duration. And that meant right-sizing the business and cutting what was unnecessary. The bloated expenses that had been there for years.
Most companies found enormous savings immediately.
Many of those companies went on to become healthier businesses in the long run. Because the challenges they faced in 2020 forced them to reevaluate, and to run their companies the way they should have been running them all along.
Your budget may have been decided month ago. But if you’re missing your financial targets, take advantage of the spring cleaning energy.
Revisit your expenses in a new light: not planning for what you might need….maybe….someday…but what you know you need for the business you’re running now.
