Keeping Track of the Bottom Line

published in The Communicator, Spring 2000

Now that the refinancing boom is over it's more important than ever to watch your bottom line. In addition to increasing your prospecting efforts, it's important to monitor your expenditures. Listed below are some ideas to consider when reviewing your finances to see where you might be able to tighten things up.

Employees

If you have employees, have a meeting to explain the importance of saving money. You'll need their cooperation to truly make any gains in this area.

Storage Expenses

The appraisal business creates a lot of paperwork. Most of us find ourselves constantly buying file folders, storage boxes, etc. Consider reusing your folders and storage boxes. I had 15 years' worth of accounting data neatly filed in folders and expensive storage boxes. Because I am less likely to have the need to access the older files, I transferred all the old paperwork into Tyvek envelopes, which I labeled for each month and year. (These come from the US Postal Service and FedEx at no charge!) I reused the better quality folders and boxes filling them with my current data. You'll find a wide range of costs for storage boxes. If you don't handle your boxes often (long-term storage), consider buying the cheaper, thinner boxes. Same thing with file folders; if you they are for archiving purposes only, consider using inexpensive folders that are thin and not reinforced.

Consider digital storage. Paper output requires paper, toner, file folders, labor, storage space and handling costs. Just remember that digital storage requires serious planning with respect to backing up your data. The cost of hard drive storage is extremely inexpensive. Burning your own CDs can be done for under one dollar each.

Record Retention

Do you really need to store all those old records from many years ago? If you don't have a good indexing system then you might not be retrieving what you need anyway.

Postage Expenses

Many people simply use 33-cent stamps when each additional ounce is only 22 cents. Invest in a small shipping scale and purchase the postage needed for additional ounces above one ounce. If you rent a postage machine, have you ever considered whether the monthly fees are worth it? A postage machine is a great investment for a large business because it allows control of the postage costs and prevents theft. But if you are a two or three person office you probably are not getting your money back. As anyone knows who has a postage machine, the cost of labels and ink can be significant. The cost to actually buy an electronic postage meter is usually under $50 at an office superstore.

Shipping Expenses

If you have any appraisal management companies as clients, ask if you can use their shipping numbers when sending packages. The majority of my AMC clients allow me to use their shipping numbers, which saves a significant amount of money. Consider using Priority Mail from the U.S. Postal Service. It's almost always the most inexpensive shipping method and is great if the package can arrive in a few days, rather than the next business morning.

Advertising

Make a conscious effort to garner more publicity this year, versus paying money for paid advertising. There are literally hundreds of books on the subject. Try reading some of the various Guerilla marketing books and highlight those ideas that appeal to you. Just remember to actually implement those plans.

Accounting Analysis

You have heard it many times before, but have you actually sat down at the end of the year and analyzed your accounting numbers? Most accounting programs allow you to view your expenses as a total percentage of your income. Pay special attention to your greatest expenses. You might also find that you need to create some new accounts in your bookkeeping program so you can track your expenditures better. Also, do you actually know your expenses for each appraisal? A sophisticated cost accounting set up would be a waste of time and money, but consider tracking expenses for a few weeks each year. While you certainly have to consider your competition when setting your fees, you also want to make sure that you're not losing money as a result.

Auto Expenses

Take advantage of your mapping software by actually measuring the mileage for each order. Be sure you can quote your jobs precisely in this manner. You might even be able to offer a less expensive fee for those orders that are close by. More importantly, realize the time it takes to travel to a more distant place. Your labor will be the most expensive cost when doing an appraisal.

Need Employees?

Consider hiring at least one part time employee. It's likely that you'll run a more profitable business by paying to get some of the more menial jobs done by lesser-paid employees.

Billing for Special Services

Begin documenting the special requests of your clients and try charging for them. This process starts when a client calls with a new order. Are you charging for extra copies, actual photos, multiple shipping addresses and special billing requirements? I have found that many clients will call and ask for a fee quote. It isn't until they fax the appraisal order to my office that it's clear that they have added more requests onto the order form. This is the time to call them back to adjust your fee. You need to price your services in line with the market, certainly, but don't allow them to take advantage of you.

Copier Expenses

Shop for the cheapest consumables for your copier. Know what copier engine resides in your machine to check for compatible cartridges that may be cheaper. For example, I have an Olympia photocopier but the print engine is made by Minolta. I buy Minolta toner cartridges because they are much cheaper than the ones from Olympia. There are only four or five popular print engines for most photocopiers- find out which one is in your machine and you'll be able to shop a larger selection of toner cartridges.

When you go to buy a new photocopier, check on the cost of consumables before purchasing. The manufacturer's literature will tell you that you can get many more pages from your toner cartridges than you can. Look for real world examples of how many pages you'll get from your consumables by checking magazine reviews and talking to people who own photocopiers. Test the brightness level adjustment on your photocopier to see what level is acceptable for your copies. The lighter brightness levels save quite a bit of toner, especially if you are running copies just for own files.

Inkjet Expenses

Look into inkjet cartridge refill kits. Granted, most reviews say that the refill kits don't give you the same high quality print outs that you get from the original cartridges. But can you accept slightly lower quality if you save a lot of money? Beware of some of the newer Hewlett Packard printers that contain proprietary cartridge technology. These cartridges contain a computer chip that is encoded with a copyrighted security scheme. This makes after-market consumables next to impossible to obtain. You will have to buy Hewlett Packard cartridges when it's time to refill.

Bulk Purchasing

Consider purchasing in bulk with other businesses, even if it's just a few times a year. Popular bulk items include paper, toner, coffee, shipping supplies, water for the cooler, folders, film, and batteries.

Computer Expenses

Definitely go digital in the areas of sketches, photos and mapping. If you are tight on money you can find $100 digital cameras that are better than nothing. If you are doing even a reasonable volume of work you'll find that your savings will be tremendous, especially in the area of photo developing. In my case, I think I have saved the most money in labor because I no longer have to drive back and forth to the one-hour photo developer.

Make careful software purchases. There are many emerging technologies whose benefits to the appraiser are unknown. Wait until a client requests your abilities in a particular area. Only you can decide how many software packages you need, but I've talked to many appraisers who have complained that their clients have demanded technology and then failed to fully implement it. Adobe Acrobat is one low-cost program which can help you get EDI ready. Run the numbers when a client requests that you purchase software to work with them.

Save Money on Labels

Do you really need a professional looking label on each file folder or will handwriting do just fine? There are many generic label publishers besides Avery who produce very usable labels at a fraction of the cost.

Telephone Expenses

It's very typical to choose a long distance carrier when you purchase an additional line. Your local phone carrier will then notify the long distance carrier that you are a new account. Unfortunately, they'll usually put you on their most expensive program unless you call them yourself to see what calling plans are available. While you are at it, call all of your long distance carriers and let them analyze your calling habits. Sometimes you'll save money by allowing them to send you one bill each month for all your telephone lines, rather than sending separate bills. Ask your clients if you can use their 800 numbers for their voice and fax lines. You should practically insist on this if you have appraisal management company clients who demand numerous return calls.

Make sure you really need all of the telephone lines you have. Consider using an inexpensive switch box or software solution that redirects your inbound fax calls to your fax machine. Some newer fax machines have this capability built in. Some telephone companies offer a flex line service where you pay a higher rate for your calls but a lower rate per line. In effect, you aren't paying for that telephone line until you use it. Check the rates on your cell phone service often and avoid long-term contracts. Anyone who has ever tried to get out of a long-term contract can tell you the nightmares that involves.

Internet Service

You should be able to avoid long-term contracts with your Internet service provider and web hosting company. While there is not a lot of price difference in Internet service you will find quite a wide range of fees for hosting a web site. Because the cost to maintain your web site is an ongoing, monthly fee, you can save a lot of money over the long term by saving just a little each month. Also consider selling advertising space on your web site. If you are not using the entire amount of space on your web site you need to remember that you are paying for that space you don't use.

Home Office Expenses

If you work out of a home office make sure you take all your allowable deductions. Check with IRS Publication 587 (Business Use of your Home) for more details. Be aware that if you take depreciation for your home office and eventually sell your home at a profit, you will have to report that portion of your home as a business gain which could result in a large amount of taxes due. Check with your accountant in advance to see if depreciating your home office is a good idea. For many appraisers it is not.

Film and Developing Expenses

Buy photo film in bulk if you still use regular film. There are a number of national photographic supply companies that sell bulk film at very reasonable prices. Also, if you still use regular film consider buying rolls of 12-exposure film. If you are like me, you usually have to get your film developed as soon as possible, even if there are more shots left on the roll. Buying 12-exposure film cuts down on the waste. You can also negotiate more favorable pricing on film development at the local one-hour photo shop if you give them all your business. You can sometimes get better pricing if you are not picky about the type of surface (matte or glossy) on your prints. That allows the photo finisher to develop your prints on whatever print material they have in the processing machine at the time they need to develop yours.

Save Time and Disk Space

Are you familiar with the various compression techniques when saving digital photos to your hard drive? While complete instructions are beyond the scope of this article, be aware that you can save precious storage space on your hard drive and backup media by compressing your digital photos. Hard drive space is more inexpensive than ever, but large digital photo files waste money because of the increased time it takes to work with them when opening, saving, backing them up, etc.

Small Expenses

Over the course of one year, you can save money by keeping track of many of the small expenses. Most of us keep track of our routine business expenses because we write a business check or use a business credit card. Consider setting up a petty cash account to keep track of smaller business expenses. That will allow you to keep track of expenses that normally fall through the cracks.