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What are the first expenses that business consultants typically look to cut when they acquire a new client?

Russ Smith Jr.'s Profile

Business Consultants constantly pitch our company and tote that they can immediately cut our expenses/cost-basis by "X%".  What costs do they typically look to cut first?

Answers

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

A few that I would look at as the biggest areas of opportunity will be in AR Days; AP Days, Interest, Aged Inventory, GM, & Payroll as a % to Income comparative to LY.

If you reduce AR Days that improves cash flow; do you have the best rates from your vendors and are you taking advantage of any discounts (have you negotiated discounts); If you have company credit credit cards - pay them off monthly to avoid high interest or can you negotiate better rates.

Insurance and bank shopping would be next on my list to ensure you are getting the best deals. This includes the merchant side. Merchant fees will creep up after that first initial "deal" with a new company.

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

Christie's suggestions are good for long term planning. They are best practices. However, you can always score quick wins through over-time management of non-exempt employees and vendor management. Essentially these areas are low hanging fruit. A Consultant can look good quickly. While they are real savings. They are not easily easily reproducible every year. Please review a blog Iposted on this site April 17 - "Expense Control through Vendor Management."

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

The first expense I look to cut is T&E. But you don't need to stop T&E, you need to modify behavior so that it is intelligently done, at moderate amounts, with set rules.

Those who complain the loudest are usually (but not always) the abusers....

I've saved almost 60% on T&E expenses, and for some companies that is big big change ($$)...

Nicole Lucarelli
Title: Director
Company: Financial Services
LinkedIn Profile
(Director, Financial Services) |

I focus on Procurement, Strategic Sourcing, and Vendor Management related savings opportunities, so from that perspective:

1. Understand how you are currently spending money with your vendors or a "spend analysis". This will help categorize spend and identify opportunities by identifying where you are using multiple vendors for the same types of spend or where pricing may be above current market.

2. Select areas to focus. Categories that are approached first are typically ones where you can achieve quick wins. These typically include Office Supplies, Travel, Printers, IT Equipment, MRO, Shipping, Supplies, Temporary Labor. Each has it's own strategy for identifying and delivering savings. If a category has not been actively managed or bid, savings upwards of 30% can be achieved the first time it is attempted. While you can continue to find savings over time, the percentages will not be as high.

3. Expand the Initiative. Then once a track record is developed, more complex, strategic areas can be addressed. This can include Professional Services, Advertising, Human Resources, Benefits, Legal. You can also then begin to look at how you manage the relationship with the vendor, as this will be different depending on what good or service they offer.

4. Review the Process. The overall process should be addressed as well, POs, eProcurement, PCards, etc. What is the most efficient method of buying that will take advantage of any sourcing work that has been completed.

This is all dependent on how receptive the organization is to these initiatives. Consultants can't save money for you. They can facilitate you and your organization to achieve savings. As Wayne said, it's about behavior. I'll extend that to change management, aligning to corporate goals, and being seen as a partner by the organization.

You can reference by blog entry on this site: Don't Touch the Coffee...and other Best Practices in Spend Management For additional thoughts on how to approach launching an initiative based on enhanced Spend Management.

Christine Speedy
Title: Global Business Development
Company: CenPOS
(Global Business Development, CenPOS) |

I've been contacted by a bunch of people in this industry who've pitched me on offering this service to my clients, frequently for a cut of the revenue. I do not (and will not) offer this service, but as a result, I have a lot of insights.

While the consultative approach is part of the equation to determine the best route, the top 3 targeted, if applicable, are: telecommunications, shipping, and merchant services. The rest depends on the business type- printing, supplies etc. The idea is to attack the big monthly expense chunks first, then go after things that may take more time like property taxes, insurance, T&E etc.

Michael Nappi
Title: President/CEO
Company: Pax Industries, Inc
LinkedIn Profile
(President/CEO, Pax Industries, Inc) |

Hi Russ, a consultant is generally going to look at expenses that have the best potential for large savings first and work their way down. The specific expenses they look at will greatly vary based on the type of business you are in. For example, one of our large expenses is packaging supplies from a small group of vendors. This would be flagged as worth investigating.

A consultant will look at how you are currently managing that expense and make recommendations. It can be as simple as re-negotiate pricing/terms, putting an RFP out, re-assessing the business need for that expense, etc.

They really need to spend a bit of time learning exactly how the business works to make the most effective recommendations, not just the most cost effective. That's why you may want to take a look at an internal team tasked with the same type of investigation before you outsource the task to a consultant.

Also, consider how involved the consultant will be in the implementation process and what additional expenses there may be. This is where most changes fail in my experience. Ideas are nice, but can provide no value or even be harmful without the right implementation.

(Agent, JKS Solutions, Inc.) |

Depends on the business and what the potential client's goals are.

If you are taking a lot of time to listen to pitches but you don't have a goal in mind, you might be wasting a lot of your time.

Every company has different defect areas, and its the consultant's initial job to do enough business development on the front end of the relationship to determine what your defect areas are and which you would likely hire them to improve.

Most of the waste in your finances will be noticeable as lags in your internal processes, and unhappy customers. So if you get your teams on point internally to focus on better hand offs and taking advantage of system capabilities you are 90% improved within a few months. That is really all in external consultant can help you do...manage your team and lead them to water.

alfred minnaar
Title: ceo
Company: Smart-It Accounting Software
(ceo, Smart-It Accounting Software) |

If it is a retail business then I would start with the inventory. Remember a 10%, incorrectly ordered inventory would result in a R100 000 cash flow problem.
Look at an accounting program that can connect an inventory item to multiple suppliers with the ability to select the cheapest item. Typical savings in the computer retail environment is +- 3 - 5%.
The next thing that I would monitor on a daily basis is the mark up % / profit per item. This would highlight numerous admin problems to potential theft problems.

Topic Expert
Randy Miller
Title: Partner
Company: CFO Edge
(Partner, CFO Edge) |

I am always amused by people who say they can cut costs by X% with no knowledge of how the company works. If you hire on that basis, you may end up with recommendations that cut muscle and bone rather than fat, because the motivation of your consultant is to meet HIS goal not to find YOUR business needs.

A responsible consultant is going to work with you to understand where the inefficiencies are in your work processes and procedures. Anytime you are bringing in outside help, your goal should be on creating more "bang for your buck". That could be through cost-cutting, reallocating resources, product realignment, or other changes. Rather than just automatically looking at cost reduction - look for the best solution to increase the bottom line.

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