I help a lot of people buy and sell businesses. Over the last few years, it’s been the biggest chunk of my work and the most rewarding. One very painful thing I see though, is a business selling for less than its worth because its expenses (and, therefore, the bottom line on which the sale multiple depends) are out of whack. When we talk about “preparing your business for sale,” dialing in your expenses so your P&L looks great is job #1.
Luckily, there is an easy button for that and not one I really understood well until recently.
It’s called cost reduction consulting. Basically, it’s a service that will examine your costs in areas like telecom, merchant service, SaaS platforms, uniforms, facilities, etc., and help you reduce them. There are a number of companies offering this kind of expertise, but I was fortunate enough to sit down with Robyn Bowles who runs the Chandler Office of Schooley Mitchell—this Company is the largest independent firm in North America within this industry—to get her take on cost reduction and where it fits into a business trying to maximize its bottom line.
Juliet: What are you aiming for when you do an analysis for a business?
Robyn: Our goal is cost reduction, but that also includes streamlining vendors and services where possible. Most businesses don’t understand their expenses. Businesses often pay for services that they are not utilizing, and don’t track the actual cost increases—that is the downside of auto renewals, you don’t see expenses creeping up over time. A service like Schooley Mitchell also gives owners an assist so they don’t feel captive to the current vendor and market conditions.
Juliet: What does a typical cost reduction consulting engagement look like?
Robyn: We start with a signed Service Agreement that outlines the relationship and responsibilities, as well as addresses confidentiality. From there, we hold a client intake meeting of about 60-90 minutes (depending on client size) where we learn more about the overall direction of the organization and then start diving into each cost categories. For each cost category, we discuss what the client needs in that area in terms of basic requirements, special features, etc., as well as what they like and don’t like in their current vendor. From there, we just need three months of invoices from each vendor to get started. We may reach back out for additional information, such as a copy of the vendor contract and photos of any equipment required (i.e., telecom).
Then 6-8 weeks later, our analysts will send their Value Report, which we review in detail with the client. The Value Report contains a detailed description of the current vendor’s services and costs and then usually at least two recommendations for change. The client then makes the go or no-go decision on each proposal. If the client chooses to move forward with a proposal, we start project managing the implementation.
Juliet: Is there an average a business can expect when working with a Cost Reduction Consultant?
Robyn: For Schooley Mitchell clients, the average is around 28% in cost savings, and the best part is that our fees actually come out of the savings that are generated so you aren’t spending to save. There is also another great thing about working with someone to get your expenses in line. We monitor your future invoices and become the single point of contact for all service related issues, freeing you up to focus on more critical tasks like generating revenue.
Juliet: Do you ever get any incentives or commissions from working with certain vendors and suppliers?
Robyn: No. We are completely independent of all vendors and suppliers. We act with the best interests of your business in mind.
Juliet: What are some of the typical areas where you are able to save clients money?
Robyn: We have had strong results in a number of different areas—from merchant service fees to telecom and wireless. As an example, we shaved about 40% from a construction company client on shipping and that was after another $30k for the same client in wireless savings. We also helped a window contractor reduce its waste disposal fees by a whopping 53%.
Spring Cleaning for Your Business
Schooley Mitchell does work with businesses of all sizes but even if you don’t hire a consultant, getting your operating expenses as efficient as possible is always a worthwhile exercise in that 3-5 year window before you plan to sell. In fact, one of the first things that the financial expert in my own business coaching program pushed us to do is an expense audit. It’s a great exercise for any business owner to undertake at least annually. I guarantee you will always find something that is off, or you no longer need. Remember, the more profitable your business is, the higher the sales price will be.
