This Capital Efficiency Secret Will Help You Reduce Business Expenses and Free Up Cash
With economic uncertainties, capital efficiency is on everybody’s mind. Small businesses are contending with tight budgets and scarce resources more than anyone. However, you may be sitting on more cash than you realize, waiting to be redirected to more impactful initiatives.
In this article, I explain the Triple C exercise and how we’ve used it with clients in the past to find upwards of $70k for businesses to reinvest. It is a strategic method to optimize your business expenses to make informed decisions that align your resources to the long term goals and reduce operating expenses in your business.
Table of contents:
The principles of healthy cash flow for small service businesses
A Best Practice Tool For Your Team’s Time Management
The Importance of Subtraction
The Time (Or Calendar) Audit
Productivity Tips For Leaders to Combat Inefficient Use of Time
The Principles of Healthy Cashflow for Small Service Businesses
Ensuring healthy cash flow for your organization boils down to a few principles. You need to make sure that the cash coming in from your clients is not only paying for today’s business, but also making a profit to reinvest into tomorrow’s version of the company. Looking at major companies in every industry, optimizing cash efficiency with AI tools is on the horizon. We’re seeing organization’s cutting labour expenses by investing in technologies to increase the run rate on projects, reduce labour intensity in administrative tasks, etc. While small businesses often don’t have the cash to invest in such technologies, the principle of making investments that help save you minutes, hours, or even days through the year still stands. It looks like freeing up cash by optimizing operations and cutting unnecessary costs.
A Note on Revenue Vs. Expenses:
Revenue and expenses are not separate. They are too often fictitiously separated and it is not helpful. Every dollar you spend is an investment, in some way, shape, or form. So is it giving the return that it ought to be giving the business in the timeline? Is it providing a return that benefits the business both now and in the future? This is what it means to have a healthy cash flow.
Introducing the Triple C Exercise
One of the best exercises that we do with organizations early on in almost every transformation is called the Triple C exercise. It basically comes down to:
What are you going to cut?
What are you going to control?
And what are you going to continuously improve?
You go in line item by line item on the P&L (on your expenses) and you separate them. You have to get down to the individual expenses.
What I have found is that there is never a massive nugget where organizations are overspending, by you know 5% of total revenue in one area, and we can just cut it. Instead, there are tiny expenses everywhere in their business that at one point made sense, but no longer do today. Every one of them by themselves don’t look like anything worth spending time on, but the aggregate of all of them end up being a pretty significant amount of cash per year. This exercise effectively shows how to reduce operating expenses in your business by systematically evaluating and addressing each cost.
Put the Triple C Exercise in Action
The key here is that it is not a single C exercise. It is a TRIPLE C exercise.
The exercise is so effective because you’re not just looking at something and asking “Cut or not?” It is a more nuanced discussion that allows people to articulate why something is important and what we might be able to do to save some money doing it. When you frame it this way, you get into a discussion of value.
Cut:
Identify unnecessary expenses and eliminate them.
Example: Cancel redundant software subscriptions, monthly magazine subscriptions, chamber of commerce memberships you no longer use.
Control:
Optimize existing resources to ensure maximum efficiency.
Example: Reduce the number of software seats or switch to free versions if you’re not taking advantage of the paid features.
Continuously Improve:
Enhance the value derived from essential tools and resources. If there is a tool someone really wants to keep, control it (who is using it and how) and for the next 6 months monitor the return on it. How many minutes or hours is this actually saving? Is there a more creative solution to get a higher ROI from that activity?
Everything should come up, from memberships and softwares to magazine subscriptions. Some of these sound trivial, maybe just $25 per month. But the point is, what return is that bringing? Can you see it? How do you maximize it? And when you pull these out, you start to see a totally different set of items that maybe we don’t need to use that way anymore. You get away from the human bias of once I have it, I don’t want to get rid of it.
How Often to Complete the Triple C Exercise
It is really easy to spend money and it’s really hard to tighten the belt and rein it in. This is why I believe the Triple C is a cyclical exercise that organizations need to do at least once a year. Don’t wait for an emergency to do this, make it part of a healthy cadence.
The cadence of strategic meetings that we subscribe to:
Two days a quarter
Half a day a month
An hour a week
On an annual basis one of those meetings should be a little longer where you go over some of the larger things to address in the organization. You should be going over your organization’s 10 year view of the world, where you are going, and what you are building. Are you building a $200 million company or are you building a $2 million company? You do dramatically different things for that, right? You want to get that clear.
In these meetings, go through a number of exercises like workforce planning, resilience planning, evaluating your single points of failure in the organization. One of the exercises that has to be on there at least once a year is the Triple C exercise. This cyclical review helps maintain a focus on return on investment and organizational health.
The Labour Bucket
When you do a Triple C exercise, the number one bucket you need to look at and reassess is labour.
It is the unfortunate duty of a leader to have to deal with this for the health of the organization. Many owners are inundated with this idea that letting someone go from your team is a bad thing. And it is uncomfortable. But we make a series of assumptions and risks believing that the organization is going somewhere and that these investments will bring return. And when we’re wrong on those, we have to address it.
You Are the Steward of Financial Return
A budget does not mean you have $10, so you have to spend $10. As the owner of a small business, you are the stewards of how you are redeploying the returns from your customers to make a stronger, more resilient business that has an engine for change built in. Part of that is being the stewards of the financial allocations for a return.
We worked with a large organization once and prompted their senior leaders to consider, “I know I have it in the budget, but do I actually need to spend it? And is there an alternative?” Just by asking those questions, none of them ended up spending their whole budget and they realized that there were so many creative solutions that brought a better return than the extra hire or piece of equipment they had in their budget. If you’re a leader or owner with a budget, spending it does not mean you’ve succeeded.
Conclusion
The Triple C exercise is a powerful tool for enhancing capital efficiency and ensuring the long-term health of your business. By regularly reviewing and optimizing expenses, you can create a more resilient organization capable of thriving in any economic climate. The best way to avoid cash flow problems is by embracing the principles of Cut, Control, and Continuously Improve. This approach will help you reduce operating expenses in your business and achieve greater capital efficiency.