Look beyond revenue for profit growth.
Businesses are already looking toward 2017 and
considering what has to be done to keep profits
growing. The Canadian economy is expected to
grow at only 1.5% according to a prediction by the
Conference Board of Canada, which claims that
“…there are plenty of headwinds for Canada’s economic
- Investment in the oil and gas sector is still
- Non-energy investment is lacklustre, so
Canada may soon face lack of capacity in
- Canadian consumer spending may not improve
because incomes aren’t rising sufficiently.
- Consumers are also stretched thin with debt.
- Growth prospects for the global economy
- U.S. growth this year is also tepid.”
Preparing for 2017
In a slow-growth environment, the best way to maintain
or improve the bottom line is to reduce expenses.
Now is the time to look at year-to-date financial figures
and establish budget goals for the next fiscal year.
Start with zero-based budgeting.
Consider the Following
Start with zero-based budgeting rather than simply
adding a percentage to last year’s expensed figures.
Every item of revenue and expense in the general
ledger is reviewed and the revenue and expense items
are justified with realistic assumptions.
- Consider the possibility of having employees work
from their homes in order to:
- reduce the cost of lease space
- reduce travel allowances or reimbursement
- reduce in-house cost for utilities, telephones,
taxes, maintenance, and interest
- Review the communications system. Determine
whether a separate facsimile line is necessary.
Consider using an Internet system that connects to
each employee’s smart phone rather than using the
traditional land line.
- Consider whether the cloud would reduce computer,
printing and communication costs and still
enable employees to find data from one source.
- Purge old documents. Much data older than eight
years can be shredded to free up space.
- Review the age and condition of your work vehicles.
Should you buy a new vehicle or spend money
on repairs and maintenance?
- Can some vehicles be sold to reduce the cost of
insurance, licences, repairs, maintenance and fuel?
- Review the budget for snow removal and ground
maintenance. Perhaps a flat rate per snow removal
would be cheaper than a contract. Could ground
maintenance be performed less frequently?
- Review electricity consumption. Can work schedules
be altered to take advantage of lower, off-peak
rates? Is it time to update the lighting systems,
both in the warehouse and in the yard, to higher-
- Consider whether “just in time” delivery is a
better way to manage inventory. Delivery “only
as needed” reduces the amount of space devoted
to storage and frees up working capital by cutting
- Examine your lines of credit, credit cards, mortgages
and loans. Perhaps interest costs can be
reduced, advance payments made, and credit cards
paid off with lines of credit at lower interest rates.
- Determine whether it is necessary to maintain all
full-time personnel. Could their jobs be done by
part-time employees or contract workers?
- Evaluate employees on performance and return
on investment. Give raises simply based on productivity,
quality of work, interaction with clients
and staff. Have candid interviews with employees
to obtain feedback on how they view their
- Ask all employees how they would improve their
expertise to increase productivity or reduce costs.
- Examine the time taken to collect receivables. If
your company is not receiving payment within 30
to 45 days, perhaps it is time to implement a COD
policy for late payers. If a large part of a delinquent
client’s bill is, for example, machine parts, then
perhaps you should have a deposit-for-parts policy
in place. Otherwise, your business is acting as a
bank for your clients but it is you who is paying
your bank or supplier for overdraft or overdue
- Examine credit card costs. If the cost of collecting
credit card payments is excessive, consider switching
to a debit card or e-transfer.
- Going paperless can save funds. Establish a system
of filing for incoming email; items received by
surface mail should be scanned, filed, and then
discarded. Use the Internet to transmit information
related to invoices, payroll and payments.
Consider e-transfers to clients rather than cheques.
- Apply the 80/20 rule. Evaluate your customer base
and determine the top 20% of your clients. Stratify
the remaining 80% and determine which are the
most aggravating to deal with. Stop dealing with
them and concentrate on the best 20%. Work on
improving your relationship with those in the
remaining 80% who show promise.
Budget Like a Start-Up
Ensuring a solid continuous bottom line in times of
economic uncertainty requires owner-managers to veer
away from the traditional budget process. Management
must look at all revenue opportunities and expenditures
as if their business were still in the start-up phase
and justify the figures for the following year on a lineby-
line basis. This will give a better understanding of
how to build opportunities and reduce costs.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.