Your Money is Your Business...Literally!

Expense Management is a Key to Survival for the Small Business Owner

It is a very competitive business landscape in virtually every sector of the market; particularly hard hit by rising costs in recent years has been the insurance and financial services industry. The slightest miscalculation in spending valuable agency resources can result in a tremendous amount of harm to vital cash-flow needs and deplete precious capital reserves needed to continue operating the agency and meeting payroll demands.

As premium revenues steadily decrease among most insurance companies along with increasing operating expenses, agents are seeking new outlets and touch points to acquire customers and access new streams of prospects to drive growth, achieve policy count increases and offset the challenge of higher operating expenses. The adoption and use of the Internet and direct access points are two examples which indicate the heightened concerns agents have for rising costs in doing business while trying to maximize revenues. These new channels promise a low cost burden to the agent while at the same time delivering a high impact marketing benefit…That’s just what any small business owner needs today.

It all Begins with a Simple Choice

Expense management is not as complicated a matter as is often made of it at the agency level. In fact, when considered against the backdrop of some simple questions related to sales & marketing, determining what is a wise business expense to assume versus one that is not…is a simple task.

It is not the choice between one thing to spend money on and another that presents difficulty for most agents. It is the actual follow through on that decision, or the execution of the choice to spend or not to spend, that causes the most problems for agent and other small business people. Making the choices between good and bad, wise and foolish, smart and…not so smart, are easy choices to make. But acting on those choices; now that is a different challenge altogether.

The Two Question Standard and The Magic of Follow Through

Expense management begins with the two question standard.

1. Is the money I am considering spending intended to drive prospects to my business?

2. If not, does the money I am considering spending go towards keeping the business entity viable and operating effectively and efficiently so I can drive customers to my storefront and keep the current ones that I have acquired?

-If the answer to both questions is, no; then don’t spend the money…Or, if you feel absolutely compelled to spend the money anyway, at least, spend the money very slowly, deliberately…and very reluctantly.

-If the answer to either is, yes, then spend it…And, yes, spend it carefully and wisely.

Recognize that the farther you deviate from this two question standard, the farther away the business drifts away from profitability and solvency.

Expense management has to do with the discipline of follow through.

Can you say, no, to one expense and, yes, to another after applying the two question standard…and then actively follow through with the decision?

Before you answer that question, consider the following example: You are contemplating buying satellite radio for your business car because you are in it so much; with all the driving back and forth to appointments & meetings plus the local channels have such poor reception, satellite radio would be a welcome addition to the business environment.

The above example is a seemingly inane circumstance; the kind of expense that is common and minimal in comparison to other large expenses that an agent, or business owner, is accustomed to making.

Satellite radio; it’s only $12 month, that's $144 a year to enjoy the benefit of uninterrupted reception with a myriad of channel choices for a reasonable cost. What harm can it do to have that in the car? Besides, my comfort is an important aspect of work and of life itself. I have earned it.

I would agree with what could be said to justify the purchase. But those things are irrelevant when considered against the two question standard.

1. Is the money I am considering spending on the satellite radio intended to drive prospects to my business? (Answer: No)

2. Does the money I am considering spending on the satellite radio go towards keeping the business entity viable and operating effectively and efficiently so I can keep current customers or drive new customers to my storefront? (Answer: No)

I am not begrudging agents and other business owners the liberty to spend their money on what they want. The freedom to make choices and decisions is one of the great attractions of being a business owner; and being an American for that matter. What I am suggesting is that agents take the time to consider their expenditures, and impulses, through the filter of the two question standard.

Impulses and Careless Spending can Lead to Business Failure

Many times, I have observed the unnecessary spending of precious business funds on things that are not relevant to the business goal. Blackberry phones, expensive pens and office items, unneeded office furniture and decorations, unnecessary and frequent business meals and excessive spending on office supplies to name a few are examples of expense traps that many agents can fall prey to when making spending choices. And as a matter of record, it is oftentimes the small and seemingly “harmless’ expenditures that cause big problems for the agent owner.

Inevitably, the day will come when money is needed for an expenditure that could actually drive prospects to your storefront, but the funds are not there; Why? Because satellite radio and that Monte Blanc pen you wanted for the office to impress clients was purchased instead. Logic could be used to justify the purchasing of all of the aforementioned items, but if squarely applied to the two question standard and critically assessed in regard to their benefit to the overall success of the agency, the answer would be to forego those expenses and apply them to marketing & sales processes within the office that will have a direct impact on revenues and in lowering expense ratios.

Freedom can Kill You…And it can Kill the Business…

Again, I feel it necessary to remind readers that your money is your business, literally. The ability to spend money and to make choices is a relative matter and a highly personal one as well. Some agents have the fortunate ability to spend more than others. Some agents have a very narrow margin of discretionary money, and are thus; more sensitive to cash-flow issues. This causes them to keep expenses strictly centered on profit and growth spending moreso than the individual with a greater capacity for spending outside thee boundries of necessity.

Agents operating under narrow margins, which are most common, have no latitude for deviation from the two question standard. Still, the wonderful part of business ownership is the ability to exercise personal authority over the spending of money as you see fit. Afterall, it is your business, and no one elses, when it comes to what you spend your money on.

But with the wonderful privilege of business ownership and the freedom of choice that comes with it, there can also be the curse of that same freedom and liberty associated with business ownership. Freedom without self-discipline is a killer. It’s a killer of profit. It’s a killer of production excellence. It’s a killer of a small business…and it is a killer of personal achievement. Freedom without discipline soon leads to bondage and enslavement, if not literally, at least financially when it comes to agent owners.

The Answer to the Question is Not the Solution.

The Solution to the Question is Not the Answer.

What You Do with the Answer is the Solution to the Question.

In regard to expenses and managing them properly as a business owner, there’s a certain discipline necessary that every agent-owner must exercise in order to adhere to the two question standard.

That discipline is rooted in the habit of always personally asking the two question standard whenever contemplating business expenditures and executing upon what has been concluded to be the answer to those questions.

For the answer to expense management issues is not the solution to the question; it is the active adherence to the answer that is the solution to the question…and the question, once again, is this:

1. Is the money I am considering spending intended to drive prospects to my business?

2. Does the money I am considering spending go towards keeping the business entity viable and operating effectively and efficiently so I can keep current customers or drive new customers to my storefront?

The answer is going to be either, yes or no. But the solution is not in concluding on a yes or no answer. The solution is in the deliberate, disciplined act of not spending when it is so indicated, or by spending when it is indicated. That is the discipline of expense management. Sounds simple in its basic form…and it is simple. The hard work is in the application of the answers; the discipline and determination to execute on the answers is the challenge and the magic to effective expense management as an agency owner.

Expense Management Relies on Metrics

Finally, expense management relies on metrics or reports that are generated in regard to revenues, expenses, production, growth, retention and a number of other factors which are used to measure the condition of the business entity and the effectiveness of business processes and personnel. One thing is certain, in any modest sized business organization, there are always metrics available to measure and gauge various aspects of the business and assess alternatives to increase production, improve upon service and manage expenses.

Use metrics in order to analyze the condition your business is in and to be able to adjust your operations accordingly; to capitalize on an opportunity, identify a shortfall, and avoid a business threat or to improve upon an operational efficiency.

Successful People Know Their Numbers

Metrics, in regard to your expenses, provide the owner with a line-of-sight to problems on the horizon before they become problems in the moment where time to make a good decision is not an option.

It has been said on many occasions; successful people know their numbers. Know your numbers…Use the reports made available to you to stay informed on where you are spending money and how you may improve upon business operations to create efficiencies and reduce overall costs at the same time.

Use the two question standard to determine whether or not to spend money on something…Then apply discipline to the answers you conclude. That is the simplicity of expense management at the agent owner level.

Afterall, your money is your business.

Copyright © 2009 - Tony Cefalu