Sales, General, and Administrative Expenses (SG&A) is a long-winded way of saying “overhead.” We’ve compiled some essential rules of thumb when it comes to using SG&A as a cash flow driver.
Rule #1: Cut carefully
The easiest cuts are usually the ones that have the smallest amount of immediate impact on the company’s success. Unfortunately, these are often the cuts that will do the most long-term damage. It’s important to understand the difference between resources that are “fat” and resources that are “muscle.”
Rule #2: Consider capacity
Do you need a bit more muscle? If so, how much? At some point, “step-functions” come in to play for nearly every business. For example, you may need to hire a whole person even though you need a half of one (we will resist the temptation for a joke about cutting people in half; that would be in extremely poor taste). Hiring more resources than you need — even muscle — gets expensive until you use up that extra capacity.
Rule #3: Only pay for what you need
Some expenses can be added “as needed” or outsourced. It’s possible to outsource or hire “fractional” employees for virtually every aspect of your organization.
Rule #4: Add carefully
If you think you’re ready to add resources, first take a critical look at: 1) why you are adding, and b) the ultimate P&L upside of your potential addition. If there isn’t a compelling impact to your bottom line, you may want to re-visit your logic and save your money for more critical investments.
We’re proven muscle builders and fat cutters. Give us a call to see how we can help you follow the rules and get with the (cash) flow.