CEO Advisor Newsletter™
Nov/Dec 2008
Practical Advice to Accelerate Growth and Profits

In This Issue

Using Your Budget to Control Costs

Fixed and Variable Cost Control: Effective Cost Saving Strategies!

Client Testimonial

Words of Wisdom

CEO Advisor, Inc. - Member of Accredited Organizations


Using Your Budget to Control Costs

Your budget must be a working plan that is used on an ongoing basis. It should be used proactively on a monthly basis to limit and track costs in all areas of your business. Use a Line Item Method
When you created your chart of accounts, you created a list of general categories such as office expense or repairs and maintenance. For the purposes of your profit and loss statement, those categories are all that is needed. But for the purpose of cost control, you want to create a forecast broken down into subcategories in order to track costs in detail. This will give you specific information on exactly where the money is being spent so you can monitor and correct any excesses. Comparing your actual expenses to the budget and the actual amount spent a year earlier on the same items is a good way to see if your costs are still in line. Monitor on a Regular Basis
Even when the trend is exactly where you want it to be, don't give up the regular habit of monitoring costs against budget. This requires accountability on your part and the part of your managers. Meet with your management team at the beginning of each quarter and reinforce the discipline needed to keep costs within budget. Give Budget Authority to Managers
A critical element in delegation of work and authority is assigning responsibility for expenditures and bottom line results. At the beginning of each period, identify the amount of money budgeted for each department manager and ask them to create a list of priorities. Then, on each reporting period, check the results of their expenditures against the amounts budgeted. Perhaps you can include an incentive program for those who come in under budget, or for exceeding profit goals. Use Purchase Orders
Whether in the corporate world or the world of small business, it is human nature to spend all the money in the budget because there is always some marketing idea to squeeze in, some piece of equipment to upgrade or replace, or some inventory that is difficult to source and creates the desire to stockpile. Be disciplined to resist that urge, and don't forget to explain all the reasons behind your budget decisions. Require signed Purchase Orders with any expenditure over a certain amount. Planning, Budgeting and Forecasting
To avoid a cash flow crisis, you must be proactive and smart. Create a brief Business Plan to focus your time and your business. Create a Financial Forecast with goals and use it as a disciplined budget to monitor and cut costs. Be Prepared to Sacrifice
A healthy business can create a great return and reward you and your employees with tremendous growth opportunities. Don't make the mistake of choosing short-term satisfaction at the risk of long- term stability. Keep all the expenditures within reason until the company is well on its feet and able to easily afford them. Consult an expert to assist in the above critical steps - this can be the difference in making it through a crisis. Planning, forecasting, budgeting and cost controls require specialized expertise. CEO Advisor, Inc. can assist you in keeping your monthly expenditures within budget, while continuing to maintain growth and productivity. Contact us today for a no cost, no obligation discussion on how to achieve your business goals.


Our mission is to provide CEOs and business owners of small to mid-size companies the needed focus and expertise, coupled with hands-on advice to grow your business. To take your business to the next level, contact Mark Hartsell, MBA, CEO/President at Mark at or visit us at for more information.

  • Fixed and Variable Cost Control: Effective Cost Saving Strategies!
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    Almost any small business will experience ups and downs. There will be periods when demand for products and services are strong and customers are paying their bills on time. But there will also be periods when money may not come in as fast as it goes out. Whether you are coping with a cash flow crisis - or just looking for ways to save on costs to improve your company's profitability - the service of a disciplined third party objective advisor can be the catalyst you need. Fixed and Variable Cost Control First, understanding the difference between Fixed and Variable Costs is key. There are two types of costs in business - fixed costs and variable costs. Fixed costs are those that are not related to the amount of sales or production. They usually include rent, insurance, utilities or other expenses needed for running the business, such as general and administrative salaries. Fixed costs can change over a period of time, although the increase or decrease is not typically connected to production. Variable costs tend to be directly related to business activity. Direct labor, raw materials and inventory are all costs of goods sold and are perfect examples of the variable costs of a business. Inventory has to be kept on hand in the retail industry, and with increased sales, there has to be an increase in the inventory, too. Likewise, with raw materials, the more goods you produce the more raw materials you will need. Service and production-related businesses require direct labor and outsourced contractors to service customers and this is a variable cost throughout the year. So now, you must be wondering just how to lower those expenses in order to control your costs. Well, there isn't one cut and dry answer, and you will need to examine your whole business strategy to determine how to achieve cost savings without impacting your business adversely. Paradoxically, sometimes in order to save money you will need to spend money, such as upgrading the technology or equipment in use. Here are some effective cost saving strategies: Scrutinize your products or services. Make sure your financials pinpoint your Cost of Goods Sold and Gross Profit Margin. Quantify which of your services are the most and the least profitable. Cut back or eliminate products that give you the least gross profits, while investing in those products that are the most lucrative. Create cost efficiencies to more profitably service your customers. Make variable costs your target. Monitor and cut fluctuating costs like direct labor, shipping and materials first, before targeting fixed costs like general and administrative salaries, rent and utilities. This is because cutting back on fixed costs can cause more financial and operational pain than when variable costs are cut. Question every fixed cost in your business. Look at general and administrative expenses and salaries for savings, and evaluate marketing programs and ineffective salespeople to further reduce expenses, while improving your operations. Look at every expense, including rent and see how each one adds to the value of your business. Does it make any difference to the bottom line? Are there any other options to health care coverage, administrative salaries, office supplies? Are there better, faster, cheaper ways of doing things? Vendor Terms. Work out improved terms with your vendors. This effort will pay off many times over. The goal is to pay vendors in a comparable manner as your customers pay you. Monitor Receivables. One of the fastest ways to get into a cash flow crisis is to provide goods or services to slow-paying customers. Slow paying customers create a need to tap your line of credit which in turn increases your interest expense. Being proactive about monitoring receivables is essential to any business. Here are other suggestions:

    • Send invoices as soon as the product has been delivered or the service performed. Waiting until the end of the month just means you wait longer for payment.
    • Offer incentives for customers to pay invoices quickly. Everyone loves better terms - and a small discount may well off-set the cost of collection efforts.
    • If you accept credit card payments, shop around and make sure you're getting the best deal possible on payment processing.
    These are hard decisions that can require additional professional help. CEO Advisor, Inc. provides CEO advisory services, including cost cutting and restructuring, sales planning and team building, mergers and acquisitions and other services to CEOs and owners of small and mid- size companies. Contact us today for a free consultation.

  • Client Testimonial
  • "During my time with Mark Hartsell, my business went from a failing company (with a ton of potential) to a streamlined operation that has consistently been in the black and has shown a rise from 37% to 66% gross profit margin during that same period. Without Mark's intervention, the doors would have been closed months ago. Though I still have much to learn, thanks to my year with Mark, I now know how to be a CEO and run a valuable, profitable company."
    Technology CEO

  • Words of Wisdom
  • "Winning is not a sometime thing; it's an all time thing. You don't win once in a while, you don't do things right once in a while, you do them right all the time. Winning is habit."
    - Vince Lombardi - Football Coach

  • CEO Advisor, Inc. - Member of Accredited Organizations

    • Tech Coast Venture Network
    • Technology Council
    • OC Venture Group
    • Institute for Independent Business

        Copyright 2008. Hartsell Consulting, Inc., CEO Advisor, Inc.

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