It’s All About the Base…Or It’s Serious Trouble

I’m a numbers girl. No, that’s an understatement. I live and die by the numbers when it comes to my business {Quote by the husband}. You see, I step foot in my businesses just a few times a year, and without numbers to guide me, I would have no idea how to grow my businesses, coach my employees, or see the holes in my enterprise. Like them or not, they are a requirement for business leaders. With them, a true and accurate picture will be revealed.


Before I start, buy, or invest in a business, I must fully and completely understand its Base Operating Expenses. “Base what” you say? By Base Operating Expenses, I mean the core expenses necessary to run a business, and here are my two primary assumptions:


  1. Unchanging or at the Lowest Possible Expense
  2. Going to be carried with me through the long-term life of my business.


For example, if tomorrow I wanted to open a yoga or pilates studio, I would research demographics and locations while building a simple spreadsheet to aid me in the decision making process. Equally important is identifying and assessing the expected Base Operating Expenses, which will drive negotiations and ultimately a decision. Controlling those expenses will be the most significant factor in breaking even and advancing your profit margins quickly. Even with lower sales and lagging or nonexistent growth, profitably — or even survival — can be achieved with base expenses controlled.


But, what if you’re like many people I’ve met, or even one of the failing businesses I bought.


  • You leased a spot from a lovely realtor, who didn’t ever ask if the rent really worked in your business model, or worse yet, pushed you to take a higher rent than you should have or forgot to negotiate any help with your buildout;.
  • You hired too many employees to start and your payroll (and the taxes that come with it) are through the roof; or
  • You bought every piece of equipment that came recommended (trust me, I understand the temptation of buying the really pretty and shiny new equipment), but now your equipment lease is eating up every dollar that you should be paying yourself with.


At about this time, you might be thinking that owning a business might not be for you and that working for someone else is starting to sound pretty good. If you are, know that you are not alone. I, for one, have been there – done that – have the t-shirt to prove it.


{Silver Lining} Know that even the worst scenarios can be turned around. Be rest assured that, although it can be scary and far from easy, there is light (and money) at the end of the tunnel. Success can be right around the corner.


Whether you are starting from scratch, or starting over, we’ll need to harness those expenses by applying the following three key steps.


  1. Lay out clear financial picture of these expenses. The first thing I do with clients is to map every possible expense, and by map out, I mean literally draw it out as a picture. Here are the types of expenses I am talking about:


  • your rent and insurance
  • your utilities
  • if you’re an instructor, your Continuing Ed costs
  • your taxes


The list goes on and on. If you’re not sure where to start, return to the two Base Operating Expenses I identified above and ask yourself if each expense falls into those categories. If so, then add it to the list. ** Remember, if you’re waiting to open your business, ask your potential landlord for these expenses from prior tenants or for contact information of current tenants.


  1. Highlight the Negotiable Expenses. From my perspective, all of your expenses will fall into two categories: static or negotiable. As frustrating as my electric bill is at times, the only way to negotiate it is to move to a smaller space. It’s a “static expense” or an expense that does not have the ability to be changed.   A static expense can fluctuate, like an electric bill going up and down depending on the weather, but unless you have far greater pull than I do, the president of the electric company isn’t going to suddenly change the rate at which you’re billed.

Negotiable expenses are often non-fluctuating, but can be changed or altered with negotiation. Just as you initially negotiated for your rent or your insurance, you have the ability to renegotiate based on your current situation or the market. Just in the last month, I’ve negotiated in the upper five figures in rent reduction, not to mention monies for improvements, all on existing leases. I view that money saved as profit earned since now you’ll be keeping that money in your bank account (or giving yourself a well earned raise).


  1. Get Ready to Negotiate.   Negotiating is an art, not a science, so I can’t tell you every step you will need to take to be successful. Also remember that the best negotiators are generally the best educators. But more specifically, you'll want to answer the following questions before initiating negotiations.
  • What are the current market rates for the service you are negotiating? If every building in your town is leasing for lower money or your instructors are earning double dollars of everyone else in town, you likely have room to move and by showing the current rates you’ll lay out a far better case.


  • What have you put into this service or person? If you have referred business after business to your accountants, now is the time to have those names.   Your money, input, and influence can build other businesses, assist employees in growing new skills, or add value to someone else’s property.


  • What is the end dollar amount you want and what are you willing to compromise in order to get there? Are you willing to offer your front desk worker more vacation time for a lower rate, or have your metrics person work from home in order to avoid a costly commute? Give and take matters here, and when you bring something of value to the negotiating table, you are far less likely to be rebuffed.


So, what happens if you get to the end and you realize you are wrong person negotiations? That’s when you find someone who will stand strong for you and your businesses. I have hired others to negotiate fees with lawyers, just as I’ve been hired to renegotiate lease rates and redefine employee agreements and pay. And, the savings received and created were worth every penny.


Keep these lessons in mind as you contemplate your business’s next chapter. But remember, the best negotiators are the best educators. Take your time preparing these three steps and you’ll be well on the way to higher profits and bigger paychecks!

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