Operating in a Shoe Box is Profitable

Published: Oct 11, 2005

Are you thinking of expanding to new premises? Will your next expenditure increase operating costs without increasing your revenue? Do you weigh all the options of NOT expanding? Consider including these business operating principles in your decision making.

The other day as I visited my accountant's office, I noticed renovations underway in the recently vacated space next door. When she revealed the identity of the new tenant, I thought of the phrase "shoe box operation."

The vision of just having seen various boxes of client data along the walls of my accountant's office must have stimulated my thoughts for this phrase. Have you ever heard the expression, "shoe box accounting?" It names the practice of busy small business operators who toss all their source documents (check stubs, receipts, invoices, etc.) into a shoe box. At year-end this box is taken to an accountant for processing into financial statements. People still call it "a shoe-box accounting" even though paperwork explosions have increased the box sizes and neat tote boxes are cheaper now.

Shoe box accounting is simple, timesaving and cheap. And it works for some small operations.

This new tenant, who was now expanding to a larger office in the downtown business district, had come to our small city about ten years ago to set up an advertising agency. He persevered to create a top notch agency where others had failed.

I was always impressed with how many skilled people he crammed into 400 square feet of a unit located in an industrial area complex. It evoked my childhood memory of the old woman who lived in a shoe with so many children she didn't know what to do.

My first thought upon seeing his new spacious offices in a prime downtown business block was, "I hope this move and expansion doesn't cause his agency to fail." How often have you seen a successful business fail after doing a premature expansion?

My "shoe box operation" phrase describes the small business owner-manager with the courage and discipline to resist increasing occupancy and other overhead costs before there's sufficient revenue to support an expansion. I'm now passing this onto my clients as the shoe-box principle.

Related to this is another principle. Whenever we attended bankruptcy auctions of the furniture and fixtures of a failed small business, we noticed fancy executive style desks, chairs and wastebaskets. I would urge my wife to bid on the wastebaskets to replace the cardboard boxes in our fledgling business. She would always refuse. Wastebaskets become our code word for the concept of avoiding expenditures that did not produce revenue. It remained a symbolic reminder as we continued using cardboard boxes until certain financial targets were reached. My wife still refers to the "wastebasket principle" whenever I want to buy some new gadget.

On another occasion, our prime retail location was getting a little crowded. There was no space for additional floor level racks in the display area. We were running short of space for supplies in the service area which occupied the back half of the shop. We couldn't expand next door. Relocating would be extremely costly. Besides, the current spot had become well established in the minds of our customers.

One day, while contemplating this space problem, I jumped on a stepping stool, lifted an acoustic ceiling tile to find about four feet of clearance to the actual ceiling. We simply created a second tier of
merchandise display in the showroom and six-foot-high overhead cabinets in the service area. The retrieval system consisted of a pole and a mobile step-platform. The entire system was efficient and cost effective yielding higher sales-per-square-foot results.

That's when we formulated the principle of "occupy by the cubic foot instead of by the square foot."

Resist getting too fancy with anything until you are long past break-even. Take extra care when planning an expansion. Look for the hidden opportunities when you are tempted to expand or planning to increase operating costs.

Author Information

Gerry McRae

The Business Plan Coach and creator of UncleMaxSays.com

Return to Business Article Index