In the News: Expense

May 28, 2009, 9:53 am

Small Business Finance & Profitability

By William Stong

Of the 45 articles relating somewhat to profit & profitability, six of them have a strong link to expenses. Of the six, four of them involve or are being driven by government actions (or inaction in one case). Well, five, if you include the personal article.

“Waiting for word from Nepal” (April 26, 2009; p. A25) shares the wrenching story of an Alameda family’s odyssey to adopt a Nepalese child. Their journey has been complicated because “…Nepal’s new government hasn’t yet completed developing its adoption laws.” The family has already spent $21,000 and estimates that another $15,000 will be needed. A very personal example of having to spend money before attaining anything worthwhile.

The articles “Firms anxious about new fuel standards” (April 26, 2009; p. A3) and “It’s cost vs. harm in plastic foam ban” (May 2, 2009; p. A3) cover proposed governmental actions that will result in higher costs for certain businesses. In both cases, the push behind the regulation changes are much larger issues: green house gases and the environmental impact of plastic foam containers. Both are examples of conflict between long-term social goals and short-term commercial realities. The better one knows the details of their expenses, the better equipped one will be to anticipate and deal with future events.

“Santa Clara and 49ers negotiate over security” (April 27, 2009; p. AA1) covers security during games and how the cost will be paid. Both sides agree on the need and that the expense will be paid out of stadium revenue. One discussion point is if there aren’t enough stadium revenues to cover the estimated $500,000 per season expense. Which puts a spotlight on the profit dynamics of an NFL team: can’t home games generate enough revenue in a season to cover $500,000 in security costs?

Which leads to “UAW, Chrysler and Fiat reach concession deal” (April 27, 2009; p. AA1), an article that is devoid of financial numbers but which mentions painful concessions a number of times. Every organization, whether commercial, governmental, or not-for-profit, can expect a lot of pain when expenses far exceed revenues. It’s instructive that Canadian Auto Workers (CAW) ratified an agreement that “…makes labor costs competitive with non-unionized Toyota in Canada.” Competitiveness does not have feelings.

The final article, “Auditor finds tax revenues wasted on empty offices” (April 30, 2009; p. A9), is about how two California State government departments managed to lease office space that went unoccupied for more than four years, adding $580,000 of expense to the cost of California government. For no benefit.

If a company is to stay in business, its expenses must be productive. If this were your business, would you know that “…a whooping $13,800 a month…” was flowing out without one iota of benefit? Would any of your profitability reporting have been able to hint at the problem? Would your financial reviews have uncovered the hemorrhage? Would the managers of the departments have known about it? Would the auditors have found it sooner?

I know it happens, heck, it did happen: but how does space sit empty for four years?

Bill

William A. Stong

Email: william.a.stong@gmail.com

SBF&P # 16