Operating Expenses

BY MATTHEW D. MOHR

When business is strong and expanding, the cost of doing business in total generally increases in conjunction with revenue. Controlling operating costs over time can be difficult. Once an enterprise reaches a certain size, new costs (generally associated with employees) start to affect the total cost of doing business.

During periods of growth, it is far too easy to let expenses grow out of control. When business slows down, it is often difficult to reduce operating costs. Once a business has the need for a certain employee position, that position likely will be retained, regardless of business conditions. Likewise, once an employer raises wages, it is extremely difficult to reduce wages without creating significant employee issues. Few employees positively embrace a pay cut, but reality dictates a business must keep its costs in line to survive.

An annual financial forecast or budget of expenses is generally helpful in controlling costs, and a penetrating look at all expenses is a valuable exercise.

I once evaluated a small business that had good operating costs in comparison with industry averages. Upon examination, the owner paid for certain expenses incurred by some employees but not all employees. Naturally, it would not be acceptable to take these benefits away from the select few, and by equalizing all employees, which needed to be done, the operating costs would become intolerable.

Controlling costs involves keeping a close eye on expenses, especially during times of declining volume. Many businesses in our region that rely on oil revenue (including our state governments) are facing this dilemma, so we are seeing bankruptcies and bills left unpaid. Operating expenses are a big part of any business and knowing how to manage costs in good times and bad is a big part of success or failure over time. PB

Matthew D. Mohr CEO, Dacotah Paper Co. Fargo, N.D. mmohr@dacotahpaper.com

You collect paycheck after paycheck, but at what expense? A meaningful life isn’t measured by a bank account. Making money doesn’t make memories. At Alerus, we believe that in earning a living, living is half the equation.