Asset sweating is the secret to profit, that is a simple fact.
But many business owners don’t understand what asset sweating is, let alone how to go about extracting the maximum profit from your assets.
So today we want to help you understand exactly what we mean when we talk about asset sweating, and importantly give you some examples that you can take away and use in your business tomorrow.
So what is asset sweating?
Simply put asset sweating is the actions you take to ‘get as much use as possible out of what you already possess’.
It seems obvious doesn’t it?
Let me give you an example.
Suppose a pub is open from 11:00 to 23:30 every day and the most staff it can fit behind the bar at any one time is 4.
If each staff can only serve 20 customers per hour and the average spend is £8 then the maximum income is they can generate is therefore £2.92m
But if the overheads were £1.2 million a year and margin on sales 50% the most they could earn as a profit is £17k
Poultry isnt it?
Now suppose they had an upstairs room that could be used as a dining room.
If this was rented out on every Friday and Saturday night to 20 guests who each spent £45 on food and drink then that space would yield an additional income of £93.6k
If this income generated an additional 65% margin then the bottom line profit increase would be £60,840.
They’ve sweated their asset, the property and generated additional profit.
Now if your business is staff heavy, for example within a service business and you use those staff to generate income, do you look at their recovery rates, or rather how much time those staff spend on income generation and how much of that income you can charge to the client?
Here you have two factors under your control;
- The effective hours, or productivity of your staff;
- The amount of this time you can recovery from your customer.
Given that these two are within your direct control, then why do you look for more customers to add to an inefficient business?
Why not fix the simple things first?
- Make you staff work smarter and more productively.
- Ensure you can recover this via your pricing structure.
Extra profit is sat in your business waiting for you to take it, you just can’t see it.
But don’t worry, most entrepreneurs can’t even and they don’t understand where their profits are and how to sweat their assets.
For us it is simple, map you processes and align them to your cost base.
Then look at optimising what you do, how you do it and why you do it.