Are Your Administrative Costs Slicing Into Your Profits?

By Eric Britten

What a preposterous question! Obviously, if your administrative expenses (G&A) were eating your profits, you’d be doing something about it, wouldn’t you? Or would you? Maybe you’ve watched your administrative expenses rise as your sales and revenues have risen and you just figured that was inescapable. Or, worse, maybe you watched your sales and revenues decline during the recent recession while your admin expenses remained relatively level. Or, equally worse, as revenues fell, maybe you just sliced expenses in your administrative areas and watched backlogs and employee frustration build and services levels and customer satisfaction fall.

Administrative expenses as a percentage of revenues seems to be one of those vexing business indicators that owners and managers struggle with. While the concept of scalability makes sense, it’s very common to find businesses that cannot get their arms around sustainable techniques for controlling their administrative costs.

Enter two business tools: process improvement and lean engineering. While lean process improvement may seem cumbersome and complicated at first, practitioners quickly become skilled in using the tools. The outcomes from lean process improvement are numerous. Customer satisfaction increases. Morale quickly improves. With process waste and inefficiencies reduced, capacity increases and cost per transaction decreases. Cash flows are positively impacted. Other costs decrease. Management gains a dashboard that enables them to watch key financial and productivity indicators.

And, finally, lean process improvement is scalable and adaptable. It works for small and large businesses alike. Very small business owners can do the work themselves. And lean process improvement is readily adaptable for non-profits and the public sector.

Read the full article posted in our Article Index here.