Intensive scrutiny of costs is essential if you run a grocery
store or other business with very low margins. But
liposuction-style cost-cutting can benefit almost any entrepreneur.
"With every business I've been in, costs sprout and spread
like weeds," says Olson, who started typesetting and reference
publishing companies before beginning his business-book enterprise
four years ago. "So every now and then, it's good to spray
a little weed killer."
Before starting liposuction, however, you have to determine what
to cut. One way is to use activity-based costing. This technique
assigns costs to business activities, such as answering help-desk
calls and stocking parts bins, and can help to identify which costs
contribute and which can be trimmed.
With accurate cost information in hand, you can decide on an
overall cost-cutting goal. One way is to compare your costs to
competitors'. Annual Statement Studies, published by
Robert Morris Associates of Philadelphia, lists actual costs and
other financial info for more than 140,000 mostly small and
midsized companies in 525 industries. By finding the category most
closely approximating your company's size and industry and
comparing your costs to those companies', you get an idea of
whether you're high, low or just right, Olson says.
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Once cost-cutting is underway, you can see how well you're
doing by comparing your effectiveness against competitors in the
real world. And even if you're winning your share of the market
and earning profits, explains Uecker, your cost-cutting has to
continue.
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