Profit Improvement

Thanks in advance for your interest in the KSM Profit Advisors blog. My name is Scott Grotjan and I am a consultant with KSM Profit Advisors, a cost reduction consulting firm.

There are areas in every organization that are not receiving the value they could. KSM Profit Advisors has the experience and know-how to identify these areas within your organization. In fact, our consultants have never been involved in an engagement that did not result in cost savings for the client.

Cost reduction and profit improvement work is some of the most rewarding work with which I have ever been involved. More often than not, my clients start out stating they do not need our services. Over time and after sustainable cost reductions for their business, they become a client for life. Ultimately, if I energize one person or company to action, I will have achieved my goal.

Healthcare reform is coming! You might hear it referred to as the Patient Protection and Affordable Care Act (PPACA), or a host of other names. Regardless, it will be here before you know it. If you employ more than 50 full-time equivalent workers (FTEs), there are a few simple steps you can take to help you navigate healthcare reform:

• Establish an accurate way to keep track of all employees' hours in 2013.
• Determine whether it is better to "pay or play." In other words, it is more lucrative for you to pay a penalty under the employer mandate or to offer a benefit plan that meets the minimum requirements for affordability and coverage?
• Attend a conference or two. Many conferences are being held to help business owners understand the impacts of healthcare reform.
• Surround yourself with trusted advisors, from your benefits firm to your accounting firm and your attorney. And please get your staff involved in these conversations. 

As you already know, there is enough new regulation here to confuse even the most experienced benefit advisors, so speak with everyone you can and learn as much as you can. These steps will get started in the right direction.

While we are on the topic, there is a provision on the PPACA that will impact your bottom line in 2014:

In 2014, every employer – regardless of self-insurance – that has a healthcare benefit program will pay a "transitional reinsurance" fee. This fee will be assessed over every life that is insured on your policy and will be assessed at $6.00 per head, per month. That number decreases to $3.00 in 2015 and $1.00 in 2016. Consider an employer with 500 employees on a benefit program. The average household size is employee plus two, which totals 1,500 lives at $6.00 each per month. That amounts to $9,000 per month, or $108,000 in 2014. The proceeds of the “transitional reinsurance” go to commercial insurers to stabilize premiums in the individual market.

Again, reach out to your trusted advisors and seek their input. You won't regret it.

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

Employer-sponsored health insurance rates are on the rise - at a lower rate! And that is great news!

The Kaiser Family Foundation, a non-profit reporting agency on healthcare issues, recently published the findings of their Employer Health Benefits 2012 Annual Survey, a survey on employer-sponsored health insurance costs.

The findings show modest increases in the average single and family insurance premium rates, and minimal change in the cost sharing (of those premiums) with their employees. 

We all know that health insurance costs are outpacing inflation, significantly. The Kaiser report shows the change in overall premiums for the past 10 years. In 2002, the average annual premium for family coverage was $8,003. In 2012, that same family coverage has a total premium of $15,745. Employee contributions in 2002 were averaging $2,137, and in 2012 were averaging $4,316. In summary, these two components of premium payment are moving parallel based on percentages, but the overall cost to the employer is significant. There are also significant changes coming under the Affordable Care Act. 

If your company would like help sorting all of this out, this might just be your call to action. We can help meet your needs and the needs of your employees, all without breaking the bank. 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

The State Utility Forcasting group is projecting a rise in electricity rates of 20% over the next six years.

What can you do about this? From a pure rate standpoint, not much or at least here in Indiana where the rate that you are charged for electricity is regulated. If you are fortunate enough to own a business in a deregulated state, you can certainly use the free market to impact the rates that you pay. 

As far as non-rate related actions, there are plenty. I'll save that for another blog, but there are many action items that generate savings. 

Whether your business is in a regulated or deregulated state, there is  money to be saved on your utilities. 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

Visa, MasterCard and other banks have agreed to pay more than $7 billion to settle an antitrust case brought on behalf of retailers. Is this settlement good for your business?

Every time you use your credit card, a percentage-based fee is created. This percentage varies based on the amount of the purchase and the type of credit card. For the retailer, determining the fee is wildly unpredictable. On average, the fees vary from 1% to 3% of the transaction amount.

Under the proposed settlement (awaiting judicial approval) credit card companies have agreed to reduce swipe fees for eight months in addition to the settlement mentioned above. The settlement would also allow retailers to charge a surcharge to consumers that pay with a credit card.

There are strong proponents on both sides of this scenario. Some retailers are thrilled that card fees will be "reasonable and proportional" and that they will be able to pass on a surcharge to their credit card customers. Others believe this settlement does nothing to reduce the "legal monopoly" the credit card processors have and does nothing to reduce fees long-term.

If you are not sure how the processing fees that your company pays compares to others in your industry, you might consider reaching out to an expert. Just as an accountant can legally reduce your tax burden, KSM Profit Advisors can legally reduce your credit card processing fees

 KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

 

If your company has a self-directed 401K plan, there are new disclosure rules that take effect no later than August 30, 2012. The U.S. Department of Labor (DOL) legally requires the plan sponsor to disclose in writing the fees and other "reasonable" nature of the funds selected in the plan. Additionally, specific Employee Retirement Income Security Act (ERISA) language requires plan sponsors to "act solely in the interest of the participants."

It is not unusual for plan participants to think they do not pay any fees, while in reality, the fees may be significant. Thanks to these new rules, you need to be prepared to explain all of the fees that are charged to your plan. This includes fees that are paid by the employer and fees that are paid through the fund. 

As the plan sponsor, you might consider getting a second opinion about the fees that are charged through your 401K plan. Many times, these fees represent an opportunty to save money. Even if there is not cost savings available, as the sponsor you are certainly acting in the best interest of your participants. 

If you are not sure how the fees you pay as the plan sponsor compare to others, contact KSM Profit Advisors for help.

 KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

 

CNN has recently reported the results of a poll regarding energy consumption and the new rules being imposed by the Environmental Protection Agency: Higher utility bills lie ahead. According to the poll, 90% of the 500 polled utility executives believe that new regulations will lead to higher utility bills. Of those 90%, more than 50% believed that utility bills would rise significantly. "Significantly" higher could mean up to 10%.

Translation: Although no timetable was mentioned in the article, more than half of the polled utility executives expect your utility costs will rise roughly 10%.

There are opportunities for cost reduction in your utility bills. Contact KSM Profit Advisors for more information.

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

 

As part of a fleet reduction initiative, the city of Philadelphia developed a formula designed to quantifty the relationship between size of fleet and overall costs, an Automotive Fleet article reports. In this formula fleet size was a super-variable in determining aggregate costs.

FC = (A + R/M + F+ I/O) x #V

(A = acquisition costs. R/M = repair/maintenance costs. F = fuel costs. I/O = indirect/overhead costs. #V = number of vehicles in the fleet.)

Though there is merit to this formula, fleet cost reductions are not as simple as reducing fuel costs or acquisition costs. There are certain variables that impact costs that are not included, such as maintenace intervals and insurance costs. In the end, if your goal is to reduce costs while maintaining or improving the end service product, you must include additional variables. Or, as the old says goes, sometimes you have to "see the forest for the trees." 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

 

Legislation passed in 2009 increased the employee taxable wages from the first $7,000 to the first $9,500. This increase had a start date that was later postponed to a date later in the year. Many companies failed to correct this postponement and may have overpaid. In fact, according to a recent IBJ article, of 91 businesses audited by the Department of Workforce Development, 15% of these had overpaid. If that 15% statistic holds true for all Indiana businesses, then roughly 22,500 of Indiana's 150,000 registered business have overpaid unemployment taxes.

You don't have to face unemplopyment tax issues alone. KSM Profit Advisors has helped many clients better understand their unemployment taxes, has audited for over-payment, and has established a plan to minimize exposure moving forward. 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

CFO Research Services, in collaboration with American Express, released a report last month titled Cash and Working-Capital Discipline, which describes the financial obstacles for the finance team at mid-size companies.

The report identifies the loss of bargaining power with vendors as the most prominent obstable to improving cash and working-capital:

"... companies seek relief from the pressure they feel on the sales and collections front by extending payments to their own suppliers and vendors, creating a ripple effect of more-robust collections efforts and extended-payment negotiations throughout the broader population of firms."

For help reversing this trend and increasing your bargaining power, contact KSM Profit Advisors. 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

 

If your business is considering steps to "going green," grant money is available. The Indiana Department of Environmental Management's Recycling Market Development Program is designed to aid private businesses in purchasing equipment needed specifically to remanufacture recyclable materials into finished products or industrial feedstocks. The grants range from $25,000 up to $200,000 with a required 50 percent match.

Grant money that helps you reduce costs and is helpful to our environment. Everyone wins!

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

 

Ideally, the title to this article caused you to pause and consider the concept. What happens when you don’t know what you don’t know?  
 
Most companies feel secure in what they’re paying for products and services when, in reality, what they’re paying is likely well above market price. Helping companies better understand this is the basis for our cost reduction and profit-improvement work.

One of the most powerful tools that comes from cost reduction consulting is benchmarking – the knowledge of the market price that similar companies are paying for the exact same product or service. How does the price that your company pays compare to the market price? This benchmarking process involves many facets such as bottom-line price, contract compliance, incentives, and efficiency improvements. In order to improve, you first have to measure where you stand today.

Here are two examples of recent profit improvement programs that our team implemented:

• A logistics company engaged us to review a handful of expense categories, including forklift propane. During our discovery phase, we uncovered two crucial areas that would result in significant cost savings. The first, their CPA firm (not Katz, Sapper & Miller) overlooked a credit that was available on forklift propane. Once corrected, our process resulted in significant savings. The second was the actual price for forklift propane. Our work in this area will save them almost six figures annually. Combined, our client will enjoy more than $500,000 in profit improvements.
• A physician practice group used a laundry service to launder their lab coats, patient gowns and facility linens. The prices and components of their vendor invoice were ripe with opportunity. We corrected these, and this client is now realizing a consistent savings of 48% each month.

Our cost reduction work is done across most expense categories, and we have clients all over the United States. Many times we will see a vendor offering “something better” in another geographical region. Our work will help bring these savings back to you.

Many times our clients tell us, “We never would have found that on our own.” When we hear this, it always brings us back to the beginning – what happens “when you don’t know what you don’t know”?

What you don't know could be costing your company; perhaps significantly. Accept your blindness and you might well have better sight.

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

Most organizations have vendor purchasing agreements - an agreement that notes how much you pay based upon the purchase volume.

During the course of our ongoing work for a client, we recently discovered an issue (error) with the vendor complying with purchasing agreeement terms.  In this case, we were auditing for compliance with carrier usage on the transportation side. Over the course of our work, we were introduced to a much larger issue: Compliance with the purchase agreement terms.

This client's purchase agreement terms indicate that freight is included for the merchandise being purchased if the merchandise is over a certain dollar amount. Under that threshold, our client is responsible for the freight charges. We audited shipments for which our client paid the freight charges and found an error in 34% of those shipments. This freight should have been billed to the vendor's (shipper's) account. 

You might wonder why someone didn't catch this. The invoice from the vendor showed the freight as "prepaid and allowed." Therefore, the AP folks would never know to look. The bill of lading on the shipment from the vendor showed the charges as "freight collect." The company that audits the freight invoices shows these as being billed correctly.  Therefore, everything checks out just fine.

Keep in mind this is a long-standing client, and we have access to both the invoices from the vendor and invoices from the carrier. Our team performs a compliance audit and finds thousands of dollars in freight that our client should have never paid.  The vendor has graciously agreed to issue a credit to our client for the errors. 

Who's checking your vendor compliance? If you are not sure, you might consider reaching out for help.

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

If your company is involved in manufacturing, most likely you are involved in packaging.

The cost impact of your packaging is reflected on many lines of your financials. Two large impact areas include: 

• Material Specs:  This is the most fundamental part of the process. The materials must meet your needs in order to protect your product as well as your brand.  You should always evaluate alternative materials that help meet or exceed current specifications. 
• Package Design:  Design changes can have an impact to your costs both positively and negatively. If your company utilizes the outside of the packaging to transfer information to your customer, this too is loaded with areas that impact cost. For example, you might consider switching to fewer print colors. For example, if your box is printed using three colors, switching to two colors will provide instant savings.

The most recognizable cost of your packaing is on the invoice from your supplier. You might consider some other lines of your financials where packaging is found, such as transprotation, sales and labor. A small change in your packaging can result in a big financial impact. There are big dollars in small changes. 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.
 

While reading an article on the difference between management and leadership in The Wall Street Journal, I spent some time reflecting on the point the author was making: In today's economy, the line between management and leadership is blurred. "In the new economy, where value comes increasingly from the knowledge of people, and where workers are no longer undifferentiated cogs in an industrial machine, management and leadership are not easily separated."

A couple of differences which are noted in the article that I want to point out:

• The manager is the classic good solider; the leader is his or her own person.
• The manager asks how and when; the leader asks what and why.
• The manager is a copy; the leader is an original.

While I understand his rationale, his belief that management and leadership are no longer differentiated could not be further from the truth.

When meeting with companies to discuss our profit improvement strategies, I find there is a distinct line that separates the managers from the leaders. Managers simply maintain the resources given to them, not questioning whether or not improvements can be made. Leaders are proactive. They take steps to reduce costs and improve profits no matter the perceived risk.

Which best describes your actions? Those most often associated with the manager, or those of the leader?

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

Understanding workers' compensation insurance is daunting to say the least. Many components of this calculation can impact the rate you pay. Some of these components are:

1.  Remuneration - The rate per hundred dollars of remuneration (most often payroll)
2.  Classifications - Each classification applies to rate per hundred based on the varying exposure to injury. For example, the roofer is more likely to be exposed to injury compared to the receptionist.  
3.  Experience Modification Factor - An adjustment to your premium based on prior losses.

Based on past experience, we have determined that more than 70% of employers are overpaying or have overpaid on their workers' compensation premiums. Some of the warning signs of being overcharged include:

• Change in classification either positive or negative
• Change in business operations or scope
• Change in ownership
• Change in employee leasing/contractual employees

Any of these can indicate an overcharge in your current or most recent premiums. If your company has experienced one or more of these, you might consider this a call to action. KSM Profit Advisors will review your workers' compensation premiums on a contingency-fee basis. No recovery, no fee. Our work will make paying that premium a little less painful.

Is your company in the 30% that is not overpaying?

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

"The creditor hath a better memory than the debtor." -James Howell 

According to the American Bankers Association, credit cards are responsible for more than $2.5 trillion in transactions a year and are accepted at more than 24 million locations in more than 200 countries and territories.

Your business likely processed your fair share of that $2.5 trillion. You likely experienced an instant reduction to your bottom line in the form of processing fees for the convenience of accepting those credit cards.  How do you go about minimizing that expense?

Here are some questions to consider about your credit card processing:

• Do you own or lease your equipment?
• Are you on a tiered pricing structure?
• How can you ensure the transaction gets the lowest possible transaction cost?
• How does PCI-DSS impact your settlements?

If you know the answer to all of these questions, stop reading. If not, consider reaching out for help. More than 90% of the time, our clients will realize a savings on their credit card processing fees. Often, this is without even changing their processor, which means a little more green for you!

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

We recently had an inquiry on our position that most times reducing expenses is a much quicker improvement to the bottom line compared to growing sales. In reflecting upon this, let me share with you this example:
 

	Currently	w/ Expense Reduction	w/ Additional Rev
Revenue	$100,000	$100,000	$140,000
Expense Reduction %	0%	20%	0%
Operating Margin %	10%	10%	10%
Net Income	$10,000	$14,000	$14,000

To get the same net profit, you can reduce your expenses by one dollar, or grow your revenue by $40.

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

When talking trash - literal trash, not the stuff you say on the golf course - there are many things to consider.

Do you know the answer to the following questions as they relate to your business?

• How full are your containers when emptied?
• How often are your containers emptied?
• Is your container sized correctly for your business?
• How does your recycling program impact your monthly expense?

If you are not sure, don't despair. We can help! Waste is not only an area that KSM Profit Advisors works on consistently, it is an area in which we see a lot of success. We provide extensive analysis of businesses' waste removal programs, and we make recommendations for improvement and implementation. Most always, our recommendations will reduce your waste invoice by more than 20% - proof that there is cash in your trash!

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

In today's economic times, driving sustainable cost reductions is just one of many challenges, and driving them through contract compliance is sometimes an overlooked opportunity.

Nearly every organization has experienced "creep." That is my term for what happens to the savings a vendor promises that never materializes. Some might call it savings leakage or deliberate contract manipulation. However you describe it, it is not good for you or your business.

There are many aspects to contract compliance. Some of these include credentials, tiers, terms and prices. Each of these areas, if audited, can lead to sustainable cost savings. Contract compliance is one of the many features that our engagement with a client offers on a long-term basis. While each engagement varies from client to client, we perform a "roll-up-your-sleeves" approach to ensure that "creep" stays where it should.

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.

As everyone knows, there are huge budget shortfalls in education. A simple Internet search will yield countless stories, most all of them involving staff reductions. Granted, labor expense is almost three-quarters of their budget, but what about other cost reduction areas?

Below are some of the areas in where we have been able to help our education clients achieve their budgetary goals:

• Waste
• Utilities
• Supplies
• Equipment rental & purchasing
• Telecom
• Payroll-related services and taxes

I'm certainly not suggesting we can eliminate all staff reductions by engaging our company. However, our ability to save your district money is unmatched. This bold statement is supported by our fee commitment. If we cannot save your district money, we will not charge you anything.  It's really that simple. 

KSM Profit Advisors, an affiliate of Katz, Sapper & Miller, helps companies increase profits and become more competitive by reducing costs through innovation and improved efficiency. For more information about how KSM Profit Advisors can help your company, contact Scott Grotjan at sgrotjan@ksmpa.com.