3 Simple Ways to Cut the Fat From Your Balance Sheet

Are your assets too fat? Anything that is purchased but doesn't generate, or contribute materially, to a return for the business is fat. A certain amount of fat is necessary, but like a healthy body, a healthy business is made up of much more lean, productive muscle than stagnant lipids.

Assets that exceed liabilities are part of a nutritious balance sheet. But all assets are not created equal: Cash, good inventory, critical equipment, and good accounts receivable -- the things that are, or will normally turn into, money -- are the asset muscle that powers the business. Assets that don't produce returns are fat, even if some are necessary or desirable.

Yes, this is accounting 101. And yet many companies still waste money on things that have little or nothing to do with generating sales, profit, or cash. Business owners most often associate fat with wasteful operating expenses, but those problems can often be relatively easy to fix. Fat on a balance sheet -- the stuff that dilutes the Return On Assets ratio -- can be much harder to lose.

Here are 3 simple ways that any company -- especially a small, private company or startup ­-- can get lean, toned assets, with no pain and all gain:

Furnish frugally: Furniture and other office decoration is one of the most common places companies waste money. You can have a cool, comfortable, and creative space without going nuts. I'm not saying you should practice the legendary austerity of Amazon's startup days. Make sure your staff has good quality seating and anything else related to comfort, health and safety. But beyond that, control yourself. You can buy a desk for $4000, or you can buy one for a few hundred bucks (or less, especially if you're good with a screwdriver) that looks great and holds papers just as well.

Buy used whenever possible: Almost all FF&E (Furniture, Fixtures and Equipment) can be bought used. Everything in our conference room is "previously enjoyed," and you wouldn't know it; the whole room cost about a grand, and it looks great. See below:

Warehouses represent massive savings opportunities: Used shelving/racking is a fraction of the price of new, and it isn't hard to find tons of it in great condition. Our used fork lift -- which cost about 80% less than a new one -- has been serving us well for years. If your small business buys all of its material-handling equipment new, you should have your checkbook confiscated.

Run a tight kitchen: A kitchen of some sort is important, but a commercial cappuccino machine is not. Sounds incredibly trivial, but we are talking small business here. You can spend thousands on kitchen equipment, and that's before consumable expenses, so it is meaningful. In our office, everything -- coffee, snacks, soda, whatever the gang wants -- is free, and that's the only way I'd have it; it's not a place I want to be a cheapskate. But the trade-off is that we can't be extravagant either. We could put in all kinds of cool machines, but they'd have to have coin slots in order for us to justify it. And 100% pf my staff prefers free coffee from a boring drip machine to having to shell out for their java fix (yes, I surveyed them).

These are just a few of many fat-burning tips, but they are a great and easy place to start. If you spend $20,000, $50,000 or $100,000 furnishing a small office and warehouse, that's 20, 50 or 100 grand you never get back and can't use to make money. You need what you need, but every dollar not spent on non-critical FF&E is one that can turn into a dollar and change.

Before anyone makes the argument about the "intangible value of employee happiness," you're preaching to the choir. Happy employees in a great work environment definitely produce better results. But most small businesses have limited resources and have to think about every penny. So challenge yourself -- and even ask your employees -- to be honest about which assets genuinely help or encourage them to be happy and productive, and which are just "nice." Do the best you can to give them the former.

Another reason to trim the fat: It's worth very little to a banker, investor, or acquirer. These people want as little of their money as possible to go towards things that don't produce returns. That's why the balance sheet is in hierarchical order: Cash is worth more than inventory, inventory is worth more than furniture. A balance sheet showing great return on assets is one way to show that money is being well-spent.

Readers: Have a cool office that you furnished on the cheap? Send me a picture at ownersonly(at)bnet(dot)com and tell me how much you spent. I'll pick the best examples to feature in an upcoming post and the winner will get a free Skooba bag!