Peter Drucker, the grandfather of business management, said, “There is nothing so useless as doing efficiently that which should not be done at all.” Likewise, there is nothing so painful as spending money that should not be spent at all. In this post, we’ll cover a technique that you can use to identify and eliminate spending that doesn’t make a real difference in your brewery. And believe me, you have these unnecessary expenses, just like most other beer companies.
- The one question technique to identify and reduce unnecessary spending
- The five supporting questions to zero in wasteful spending
- How to put the technique into action in your brewery
The one question
Zig Ziglar was an author, salesman and motivational speaker. Ziglar wrote and spoke about a number of topics including sales, success and goal setting. In his goal-setting techniques Ziglar talked about the One Question that you should ask to determine whether you were on the right path to achieving your goals. The question was designed to be simple, but powerful:
Does this move me closer to, or further from my goals?
If the goal was to lose weight, the question could be applied to a variety of decisions throughout the day. Does this cheeseburger move me closer to or further from my goals? Does an extra 30 minutes on the treadmill move me closer to, or further from my goals? In our beer business we can re-frame the question to help identify and eliminate spending that does not move us towards our goals:
Does this expense move our brewery closer to, or further from our goals?
Next time you review a stack of invoices or sign the checks, ask yourself the question: Does this expense move our company closer to or further from our goals?
The five supporting questions
The one question technique is useful to identify, in a general sense, whether an expense or group of expenses should exist in your business. The next step is to ask five supporting questions to gain a better understanding of your goals, and determine whether the expense should be eliminated. In our business, we identified the five supporting questions listed below. These questions represented our corporate objectives and what was most important for our business. In a sense, these were our company goals:
- Does this expense make us a better company?
- Does it improve customer service?
- Does it improve working conditions, safety or morale for our employees?
- Does it improve our community?
- Does it provide a return on investment?
Customer service, employee morale and safety, support of the community and return on investment were our primary goals. We added the more general question — does this make us better? — as a catch-all for things we couldn’t define specifically. Sometimes a spend doesn’t fit neatly into the other goal categories, but you feel in your gut that it will make you a better company. So, that’s what we did.
How to take action + reduce expenses
The One Question technique combined with asking the five supporting questions is a simple, powerful way to identify and eliminate un-necessary spending in your beer business. Next, we’ll cover the specific steps to apply this technique in your business so that you can start saving money.
No. 1: Find out how and where money leaves your business. The usual ways that money flows out of your business are through accounts payable, payroll, manual checks and EFT or ACH deductions directly from your bank account.
No. 2: Insert yourself into the money-out process. Put yourself directly in-between your money and the expense to be paid. In other words, sign every check that goes out through accounts payable, review every manual check before it is mailed, look over the payroll report before it is processed, and get a listing of all the EFT or ACH payments that have been processed through your bank account.
No. 3: Do one thing at a time + ask the one question. You’ll find out that money leaves your brewery in a lot of different ways. Start with just one thing: accounts payable. Before signing the check, take a look at the invoice and apply the One Question technique.
No. 4: Review past spending. One of my favorite financial reports is the general ledger (G/L). It records every transaction that flows through your business. Print a copy of your G/L for the prior month and take a look at all the expenses. Do you know what they are? Do they make sense? Ask the one question and the five supporting questions. If you follow the steps above I guarantee that you will find and eliminate un-necessary expenses in your brewery. The only thing left to do is get started.
Wrap up + action items
The best way to make more money is to stop spending money on things that don’t matter. The one question and five supporting questions will help you find these meaningless drains on your cash flow. Review the accounts payable and your general ledger. Ask the questions of every spend. If you can’t answer yes to any of the questions, it’s time to eliminate the expense.
Kary Shumway is the founder of Beer Business Finance and Craft Brewery Finance, online resources for beer industry professionals. Shumway has worked in the beer industry for more than 20 years as a certified public accountant, chief financial officer for a beer distributor, and currently as CFO for Wormtown Brewery in Worcester, Mass. Craft Brewery Finance publishes a weekly beer industry finance newsletter, offers guide books on topics such as cash flow planning and basic budgeting, and an online course to improve taproom profits. The newsletter with a free four-week trial, industry guides and resources are all available at www.CraftBreweryFinance.com.