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Oct 10
2012

Watching Overhead

Posted by: Steve Marr

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One of my clients, "Walker Promotions", sold business promotional items like coffee mugs and logo shirts. The business employed thirty people and had been growing nicely.  The problem was that overhead increased faster than sales, squeezing profits.  The business went from a good profit as a 15-person company to a small loss with 30 employees.

When business grows, we should be able to obtain a better division of labor.  Each person should more specialized and better skilled on the job. In addition, some tasks can be delegated from higher paid staff to less costly employees. In principle, as a business grows, profit margins should increase; not decrease.
 
King Solomon observed, “The more you have, the more people come to help you spend it. So what good is wealth--except perhaps to watch it slip through your fingers!” (Ecclesiastes 5:11, NLT)
 
I advise clients who want to grow their business to write out an organizational chart for their future, not just the present. The chart helps determine in advance what skills the next hires should have as well as how tasks should be assigned.
 
Here’s an example.  Walker Promotions had six people in the accounting department.  Each handled a wide variety of tasks:  billing, handling customer questions, paying suppliers, and paying operating bills. Each person did everything which resulted in reduced efficiency. I suggested that management reorganize the department using the supervisor to field customer billing questions and assign different people to each facet of accounting. This allowed each employee to develop increased knowledge and efficiency. In addition, simpler tasks, like paying approved vendor bills and ongoing business expenses, were delegated to a less costly person.  

 


On the sales side, two people were good at designing promotional products with customers. Other sales staff was less effective.  I advised them to assign their higher skilled people to customer development and ask the less skilled, but competent, to fill reorders and handle day to day customer contact.  This allowed the two designers more time to develop personalized customer products while delegating the less demanding duties to lower paid staff.  


Just throwing people and money into the mix to increase business is a formula for disaster not growth. Many companies become successful on a path for growth and then stumble, even into bankruptcy, because they fail to effectively manage that growth.  Don’t make the same mistake.

Steve Marr, Your Christian Business Coach

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Comments (1)add comment

LeaBIRD35 said:

...
Every body remembers that men's life seems to be very expensive, nevertheless we need money for different issues and not every one earns enough money. So to get quick business loans or bank loan should be good solution.
 
October 14, 2012
Votes: +0

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