You have heard of vertigo, the fear of heights.  You might be a fearless mountain climber.  You scale up a cliff with hardly a sweat.  Your heartbeat barely rises.

But mention finance and you break out in a cold sweat.  You have a fear of finance heights.  You hold yourself back.

You may say, “That is not me.”  Yet you just might be doing it without even knowing it.

Here are some ways it shows up:

1. You hold back on spending money.  You sit on the marketing program.  You stall on product development.  You wait to hire that new person.  These make perfect sense to spend money on, but you just cannot pull the trigger.

2. You do not sign that bank loan.

3. You decide not to go ahead with the equity investment.  You rationalize your behavior.  You say it was too low a valuation, when really you are just afraid to give up some control.

4. You keep a tight leash on the money.  You do not let go and give your key people some breathing room to spend the dough.

Jon Paul

The Business Eye Doctor & Corporate Financial Expert

Providing Business Clarity & Financial Resources

financial expert equity investment corporate finance Turbo Tagger

        

Like credit cards, treat your travel and entertainment costs seriously.  You may not have big dollars in T&E, but you could be throwing some dollars out the door.

 

• Set guidelines and stick to them.  Make it clear to your people.  Do not reimburse when they go astray or you in effect set a new guideline.
• Follow them yourself.  Nothing hits home like a good example from the top.
• Get the help of an expert.  A good travel agent might save you money.  There are firms that specialize in going over your T&E costs and suggesting ways to cut expenses.
• See what you can simplify.  You might move to per diem reimbursement for out of town meals and cut out a lot of paperwork.
• Consider the value of your people’s time.  Balance that against saving some money on airfare.
• Keep up on ways technology could eliminate having to travel for a meeting.  A conference call, webcast or video conference might do the job instead.
• Insist on documentation you need for IRS purposes.  Get guidance from your accountant or tax advisor.  Insist on documentation or hold back payment.  Remember this includes local vehicle use as well.
• Make the reimbursement process simple and quick.  In this electronic world, things can move a lot faster than the old paper days.

        

A close cousin to credit card costs is travel and entertainment expenses.  You could be tight on your costs at home or in the field offices.  But once people are on the road, it is loosen the wallet. 

It can feel like a vacation to your people.  They spend on things they would not normally.  Or they may treat it as a cost of doing business.   They are sacrificing by being out of town.  So why not splurge a little as a reward?   You may agree.  You may want to treat people well on the road so they make the trips that they should.  But it could go overboard.

There may be good intentions to travel inexpensively.  But it may not be done well.  You could think you are being tight but could be spending more than you need to without realizing it.

Your people may also be traveling when it is not needed.  Technology is changing the landscape and may allow you to have face to face interactions without hitting the road.

You could cost yourself money in other ways too.  You could lose out on tax deductions without proper deductions.  You could also be wasting a lot of time for your people and accounting with cumbersome reimbursement processes.

        

Treat credit card expenses just as seriously as you would regular purchases.  While the dollars may be much less, you could save a lot of discretionary spending with little or no corporate value.

 

• Decide if corporate credit cards are really necessary or could be cut back.  Have people put things on their own credit cards and submit the expenses.  When it is not as automatic like on a corporate credit card, some expenses may just go away.  If cash flow is an issue, consider modest cash advances.  Make the reimbursement process simple and quick.
• If you still need to use credit cards, separate out the business from the personal.  Have a separate credit card for business only.  Avoid running personal costs through.  Shut that door.  It also greatly simplifies things for accounting.  One of the most unpleasant tasks accounting can have is going through credit card statements and having to separate out personal versus business expenses.  It is a great waste of time, drains their energy and is very messy.  It also opens up questions for taxes that the IRS might challenge in an audit.
• Decide if some things should really go through accounts payable and paid by check rather than by credit card.  Sure, it may be nice to rack up the airline miles, but you may be paying a real hidden cost.  It could make those free airline tickets more expensive than first class travel.
• Have accounting keep on top of credit card charges.  Do not wait for the credit card statements.  Have them download data from the online statements.  Do it weekly or more often if there is enough volume.  Get the information processed more frequently than monthly.

Know what you are on the hook for.  You may be liable for the credit card charges personally.  Even if you shut down your company, the credit card companies could still come after you.

        

You may run a tight ship with purchasing.  You compare and shop well.  You have budgets and keep in line.  It works well for what purchasing gets involved with.

But then there are the credit cards.  They do not follow the same controls.  Money gets spent in different ways.  Approvals are different and may be more lax.  The expenses hit later.  You may not see them until up to a month if you still rely on paper statements.  You may not get the documentation you should for some credit card purchases.

Personal expenses can slip in too.  It may be under the dollar radar.

You as the owner may be the culprit.  You may choose to run things through.  You may be more generous on your spending than you are for your people.  It can set a tone that people pick up on.

        

Your highest operating cost may be your people.  Certainly it can be the most powerful.  Even though they do not produce a product or service customers, your people in other operating areas can make or break your performance.

 

• Bring in the right people at the right level in the right numbers at the right time.  Know your biases.  Realize where you know less and might be prone to over or under hire.  Get feedback from your advisors or other outside experts about areas you are not sure about.  Your CPA, for example, could help you understand when to bring in a controller or CFO.  Check with owners at other companies.  Get feedback from peer groups.
• Use part-time leaders to bridge your growth.  Rather than going from nothing for a long time to eventually hiring an HR director, use an outside HR firm.  Get the benefits of their knowledge without having to pay for it full time.
• Invest in training your other operating people just as you do for your people on the line.  Keep tabs on what you spend on training.  You may find it is very low.  Ask yourself, is that really what you need to spend to keep your people on top?
• Anticipate ahead what new positions you will need as you grow.  What skills will be needed?  Do you have anybody in-house who could move up?  Where might she fall short?  What could you do ahead of time to build up those skills?  A common area is people skills.  People start in their careers as good technicians.  They learn their craft.  However, to move up, they need to learn how to work well with and lead people.  A strong accountant may need supervisory training in order to step up to become a controller.
• Understand how powerful benefits can be.  When you first start, your benefits will be limited.  As you grow, revisit your benefits.  Plan ahead for what you may be able to add when.  What might you add in two years or five years?  If you have not took a hard look at your benefits, get outside views from benefit firms or fellow owners in your peer group.
• Look at how your company operates.  Does it make it easy or hard for people to succeed?  Is it too chaotic and needs some structure as you have grown?  Or have you gone too far, with so much structure that it makes it hard for people to do anything?
• What feedback do people get on their performance?  It should not wait for performance reviews.  How well do your leaders give feedback to their people?  How well do you give feedback to your leaders?  What do you do to know how your people are doing?
• Keep tabs on your total personnel costs.  You need a supplement to your financials to show this as a separate schedule.  Get the whole picture so you can watch for this creeping up on you.

        

One of your highest other operating costs may be personnel.  Yet it also can be one of the toughest to manage.  You know what people you need to produce your product.  You know how many you need to deliver your service.  But you may feel like a fish out of water when it comes to people below the gross margin line. 

• You may under invest in some areas.  You do not see the benefits so you keep it too lean.
• You may overcompensate and over hire.  You might have too many people, too much talent or overpay.  An owner with a $2 million company has a CFO that costs nearly $200,000 with benefits.  That is nearly 10% of revenues and overkill.
• You may miss out on using good outside part-time or interim help to manage your growth.  You are not large enough to bring in a full time person.  So you go without.  The area suffers.  One common area is human resources.  You may not realize about good part-time HR leadership firms.  You end up being out of compliance in many HR areas and do not even realize it.
• You are not aware of the skills needed.  You are familiar with your people and stick with what you know.  You promote them based on their good work and loyalty.  Your intentions are good.  However, you just put them in over their head.  They want to do well for you and give it a shot.  It can either blow up and the person leaves.  Or you end up living with mediocrity.
• You may under train.  You may have great programs to teach people how to make your products or service your customers.  But people in other areas get little training.  It is baptism by fire.  There is no or little training budget.
• You inadvertently do other things that make it hard for people to be successful.  There could be too much chaos.  People turn into firefighters not leaders.  They learn to lay low and duck rather than step out.  On the other hand, you may have too much structure.  It becomes too hard to get things done.
• You miss out on ways to motivate people.  You may be a great leader and do the right soft things.  However, your benefits may lag behind.  You may lose people or miss out on hiring great talent.
• Your people do not get any regular feedback on how they are doing.  They may only hear about the problems and not when they do things well.  Time slips away.  They may get an annual performance review.  They may be surprised by their reviews, instead of knowing all along how they were doing.
• You may not be aware of your total personnel costs.  Your financials may report costs well by department.  However, you may lack a supplemental report that shows how much you spend on personnel.  You do not see it in total, so these costs can creep on you without you knowing it.

        

You squeezed every square foot out of your current space.  You have people to add.  There is just no way at first glance that you can put in one more body.  You are thinking strongly about adding a second local office and moving a department or two over there.  Before you make the leap:

 

• Factor in all the additional costs.  It is much more than just the real estate costs.  What does it mean in lost time for your people?  How will it affect your time?  What added communication costs will you incur?
• What departments would you move?  What departments do they interface with?  How will that be affected?  What impact will that have on performance?  Is there another department you could move that would not be so dramatically affected?
• How will the move affect your execution?  What is likely to not get down or take more time to do?  What will you have to do to counteract this?
• What if you were to break your lease early and move to a larger space?  How would that benefit you?  How would that compare against the additional real estate and moving costs? 
• If it still makes sense to open up a second office in town, even after factoring in all the additional costs, what can you do to counterbalance the negative side effects?  How will you keep people in touch and on the same page?  How will you make sure that things get done that need to be done?

 

A second location may still be the right move.  Think ahead about what you are getting into.   Otherwise, it could cost you dearly.  People could take much longer to do things.  You could end up executing poorly and performing poorly.  Plan ahead so it does not end up that way.

        

It does not have to be long distance.  You could have operating cost issues right across town.  It could even be walking distance.  Or even just an elevator ride away.  This can hit you even if you are just located locally and have no remote locations.
You have grown your company.  You need to add some people.  You are bursting at the seams.  Your lease is not up for a year or two.  You decide to move a department or two to another spot for the short term.
You know the additional costs of the real estate.  You are fine with that.  After all, you would be paying more rent if you could lease more space at your current location.
But you may be missing the highest costs of all.
•    People- it takes your people more time to get things done.  Instead of a walk down the hall, it is a trek across town.  You have to work harder to keep in touch.
•    Communication- it is more work to communicate.  Email has helped, but there is still nothing like talking face to face.  There are still some documents that have to be shuffled back and forth that cannot be handled electronically.
•    Strategy- the left hand may not know what the right hand is doing.  The new location could take on a life of its own.
•    Relationships- you lose some closeness.  Departments that used to work together may start to do battle now.

        

Recognize that operating costs below the margin line may be just as important or even more important out in the field.  It can be much harder work to oversee the field.  However, it may be crucial to bringing home positive net income from field operations.  The farther away the location is, the more important this can be.  If they are located in another country, this magnifies the challenge.

•    Know how much your field operating costs represent out of your total operating costs.  Does the field get the attention it deserves from you?
•    Get on the road.  Get there before a crisis hits.  You will learn things you cannot tell from reports alone. 
•    Build the relationships.  Open up the lines of communication.  You become more real to them.  It becomes easier for them to tell you when problems start happening.  It gets easier for you to pick up the phone periodically and find out how they are doing.
•    Learn from their good ideas.  Cross-fertilize between locations.  You might even pick up some good ideas for running headquarters better as well.
•    Get feedback from them about headquarters.  What does corporate do that makes their jobs much harder?  What is a waste of time to them?  What can you streamline or cut out?
•    Think about what is done at headquarters versus what is done in the field?  Are there some operating tasks you would be better off consolidating at corporate?  Are there other tasks that the field can do better because they are closer to the action?  In some companies, accounts payable processing could be smoother in the field.  They know the products and services better.  They have the local relationships and can take care of supplier issues quicker.
•    Give your field heads the reporting and other services they need.  Make it easier for them to run the operations well.
Recognize that operating costs below the margin line may be just as important or even more important out in the field.  It can be much harder work to oversee the field.  However, it may be crucial to bringing home positive net income from field operations.  The farther away the location is, the more important this can be.  If they are located in another country, this magnifies the challenge.

•    Know how much your field operating costs represent out of your total operating costs.  Does the field get the attention it deserves from you?
•    Get on the road.  Get there before a crisis hits.  You will learn things you cannot tell from reports alone. 
•    Build the relationships.  Open up the lines of communication.  You become more real to them.  It becomes easier for them to tell you when problems start happening.  It gets easier for you to pick up the phone periodically and find out how they are doing.
•    Learn from their good ideas.  Cross-fertilize between locations.  You might even pick up some good ideas for running headquarters better as well.
•    Get feedback from them about headquarters.  What does corporate do that makes their jobs much harder?  What is a waste of time to them?  What can you streamline or cut out?
•    Think about what is done at headquarters versus what is done in the field?  Are there some operating tasks you would be better off consolidating at corporate?  Are there other tasks that the field can do better because they are closer to the action?  In some companies, accounts payable processing could be smoother in the field.  They know the products and services better.  They have the local relationships and can take care of supplier issues quicker.
•    Give your field heads the reporting and other services they need.  Make it easier for them to run the operations well.

        

Your business may have multiple locations.  You are located at your corporate headquarters.  You may do a great job of keeping on top of operating costs there.  It is easier when things are right under your nose.  You can see it, you can feel it.  You sense things about operating costs even before they hit the numbers in your dashboards or financials.
Out in the field locations, it could be a different matter.  It may be out of sight, out of mind.  You may not get around as much as you should.  You may not have ways to keep in touch beyond getting the monthly numbers.  When the cat is away, the mice will play.  It may take a crisis to get you there.  By then you have spend a lot more in operating costs.  You missed opportunities to keep the overrun from starting in the first place.
The good work you do on operating costs at headquarters does not translate to the field.  You are lean at home but loose away.   It is like someone who keeps a tight diet and workout routine at home, but cuts loose on the road.  He eats more and exercises less.

        

Get the big picture.  Operate at the right level for your company and your industry.

•    Early Stage.  You are finding your reason for being.  Now is the time to be investing heavily in product or service development.   You also lay the early foundations for other areas.
•    Rapid Growth.  You have been discovered.  The market likes what they see.  Now is the time to grab all that you can.  You want to entrench your position.  You may spend more in many operating areas to get as much market share as possible.
•    Mature.  Now is the time to harvest.  Reap the benefits of the hard work you did in the earlier stages.  You can fight for more but it will have to come out of competitor’s hide.  You may put more into marketing to grab more market share.
•    Declining.  There is still more money to be made.  You have to decide to stay or bolt.  You may need to scale back a number of areas to remain profitable. 

To be the most successful:

•    Realize what stage you are in.  Knowing where you stand is half the battle.
•    Understand the key skills needed in each stage.  Build your talents ahead of time to be ready.
•    Anticipate the turns in the market.  Decide ahead what would signal a shift and watch for it.  Be ready to make moves faster than your competition.  You may have gotten all the growth you could handle with little effort.  There will come a time, though, when the going gets tougher.  You really need a strong marketing area to keep going when the industry matures.
•    Know when you need to scale back.  It is tough when an area has done so well for you.  However, you could be throwing money away if you keep on keeping on.  Sure product development came up with great new ideas that propelled your growth.  But in a declining market, you just cannot get the same bang for the buck.  You need to cut back.

        

Your company has a life cycle.  Your industry has a life cycle.  Your other operating costs need to fit what stage you are in.  What fits at one part of the cycle can be a disaster at another.
•    You may be running too far ahead of your stage.  You may have a dynamite marketing program but your industry is not ready yet. 
•    You may be running too far behind your stage.  You may be running a tight ship while your industry is exploding.  You miss out on grabbing market share while the going is easier.  You may have a better bottom line now, but it will be skinny compared to what it could be later.
•    You may miss a big turn coming up.  You do not prepare ahead and it becomes too late to catch up.  You do not build the skills needed for the next stage.
•    You may never think about this at all.  You just run on one gear, regardless of the circumstances.  You keep plugging along like you have always, even though the market has declined.  You wonder why your bottom line is suffering.

        

Make budgeting be as powerful as it can be:

•    If you do not have a budget, start one now.
•    Add budgets to your monthly reporting package and your dashboards.
•    Keep your people in the loop about results against budget.
•    Review variances against your budget monthly.  Let your people know you are watching.
•    Get your key people to buy in and own their budgets.  Guide them on the overall revenues for the next year, but make the expenses come from the bottom up. 
•    If your business changes dramatically from the budget, re-forecast.
•    If an expense is no longer needed at the same level, challenge it.  Do not just spend because it is in the budget.
•    Keep the budgeting process streamlined.  Keep the energy level high.  Do not spend more time setting the budget than it is worth.
•    Take an objective view.  Go for the merits, not the politics. 
•    Show a flexible budget as well for some costs.  Know how you are doing relative to your actual sales level.

Have a good budget process going and each year you will find you get a little bit sharper.  You do a better job of estimating costs- variances get smaller.  You take less time budgeting too.

You have a much better chance of keeping operating costs in line.  And bringing in the bottom line you want.

        

Operating Costs- Budget Games

Budgeting can be a very powerful, yet underutilized tool. 

• You may not have any budget at all.  You just operate month after month.  You may get lucky, but you may not do as well as you could.  Or problems start, but you do not see them until they get very large.
• You budget your company but not from the owner perspective.  You have a net income target but not an owner compensation target.  You could hit your company income number, but fall short on your return.  Money gets spent elsewhere before it gets to you.
• You have a budget but do not use it.  It sits on the shelf.  It does not get integrated into your financial reporting.  You lose sight of how you are doing.
• You have one, but it is top down.  You own the budget, but nobody else does.  Your team is not operating on the same page.
• Budgeting is a long, laborious process.  Your people spend more time on it than they should.  It drains the energy out of your key people.
• It becomes a game.  Money goes to the best politician and not necessarily where it should go to. 
• It turns into a self-fulfilling prophesy.  People use it to protect turf during the year.  They go out and spend money because they have it in their budget, even when circumstances changed.  It is the use or lose it syndrome.  If they do not spend it, they will not have it for next year.  You end up spending money you did not need to.
• Budgets stay fixed for the whole year, rather than re-forecasting when a big change takes place.  Your people aim for the wrong, outdated target.
• Budgets are fixed only, even though some costs vary with sales.  If sales are down, you could overspend and still look good against budget when you should not be.  If sales are up, you could be punishing people for spending when they needed to for the higher sales.

        

You know you cannot do it all.  You hired good people to run your areas. 
The same can hold true for them on a smaller scale.  They cannot know it all themselves either.  They need to have the general view, the big picture, for their department.  Like you, they will have some special skills.  And like you, they will have some areas they do not know as much about.
As you grow, that can become an issue.  Initially, some costs were too small to care about.   Now you spend more significant dollars.  You cannot expect your people to be experts on every cost in their area.  However, that does not mean it can be ignored. 
Your telecom costs may have been pretty small but now you shell out a couple grand a month.  You are not an expert in telecom, nor your head of IT, your controller or your office manager. 
Sometimes nothing or little is done.  You keep rolling year after year with the same supplier.  Or you may put it up for bid and switch.  Yet you still could be spending more than you should.
You may have someone in your company put it on their radar.  He tries hard and makes some headway.  He may knock down your costs some, yet you still spend more than you should.
Get Outside Expert Reviews of Some Operating Costs

You will have some operating costs you have to spend money on that are just a cost of doing business.  You cannot be an expert on these.  Nor does it make sense for you to have an internal person who knows that much either.  They have other areas that are better uses of their time.  Some examples include:

•    Real estate taxes
•    Telecom costs
•    Utility costs
•    Shipping costs
•    Travel costs
•    Personnel benefits
•    Insurance costs

These costs are not core to your business.  Still you are spending enough money that it is worth it for you to have them looked at.

Rather than forcing someone internal to start with Telecom for Dummies and try to become a resident expert, turn to an outside expert who does this for a living.  There are firms that specialize on these costs.  They are not providers themselves.  But they do know where you can save money.  They know where companies get overcharged; usually it is not any gouging, but just not having the best programs and the supplier not knowing enough about you.  They have relationships.  They know how to get these savings for you.  They also can audit past spending and get refunds in some cases.

Your suppliers could help.  You may be too small in an area to rely on an independent outside expert.  However, if you are large enough, it makes sense to get an outside view.

They usually work on a percentage of the one year savings.  You get to benefit in future years as well.  There is no cost to you, other than your people’s time.  If they do not find any savings, you do not get charged. 

Depending upon your size, you might be able to negotiate a different arrangement.  Or if you are too small, perhaps you can find a for fee consultant to help you out.

Do not just go for the first firm to call on you- such as a shipping cost audit firm.  Shop around.  You may find a firm that can handle multiple areas.   That can cut down on your time.

When you are spending enough on some of these costs, get the outside view.  You could soon be viewing more money inside your pocket.

        

You hired good people.  Now make your department heads feel like owners of their areas.

 

• Keep them up to date on their operating costs.  You do not have to share the whole financials with them, but certainly let them see their department costs.
• Have them budget their numbers each year.  Add this into the reporting package.  Hold them accountable for what they planned and make it easy for them to see how they do.  Make the variances visible to them and you.  They may take action on it even before you see the need.
• Give them reasonable room.  Decide what they have discretion to spend on and what needs to come up to you for approval. 
• Celebrate and reward their successes as well.

 

You, your family and your investors may own all the stock.  Yet you will have something better to own if you let your people have psychological ownership of their areas.

        

When you are just starting out, you may have total ownership of the operating costs.  The bucks stop with you.   As you grow, that can change.  You move from having just outside spending on information technology to having your own head of IT.  Or you could now have heads in other areas, like marketing, product development, or customer service.
As your company grows, you cannot do it all.  Even though you have hired them, you still may not be using them well:
•    You may have too tight of a leash.  It all goes through you still.  Everything has to be approved.
•    You could go the other extreme.  One or more department might get free rein.  You end up spending money you did not realize.
•    They do not know how the numbers are doing.  You do not share the department costs with them.  They do not see the monthly financials, which can be fine.  But they still need to know how they spend money.
•    There is no budget or it comes from you.  It is top down and they never take ownership of it.  Or they do get involved, take ownership, but never see how they compare against budget.  You may not even see this either, if you do not add budgets to your reporting package.

If they do not feel like part of the game, you are not using them well.  They do not help you as well as they could and operating costs get higher.

        

If you have all your operating costs in one large bucket, like administrative costs, break it up into meaningful sections.  Among the departments you may consider are:
•    Product or service development or research and development- depending on your business or stage, these could be very large and very critical costs.  It shows you how much you are spending for the future versus operating the present.
•    Sales and marketing- keep track of the more fixed costs here, which do not vary automatically with sales.
•    Variable selling costs- commissions, credit card fees, incentive plans, royalties, advertising.  These can be split separately when significant.  You see how these change with sales.  Meanwhile, you keep a better focus on more fixed marketing and sales costs.
•    Information technology- this has gotten bigger share of spending, first with personal computers (PC’s) and then the Internet.
•    Outside services- if you spend a lot of money on attorneys, consultants, accountants and others, split this out.
•    Customer service- this might be significant enough to split out.  It could be a sign of how well you are or are not taking care of your customers.
•    Personnel costs- you may still want to see your total personnel costs separately.  You could still show the allocation out to different departments.  For example, you could show total fringe costs so you see what you are paying for benefits, then allocate these costs to marketing, IT, etc.
•    General administrative- everything else goes in here.  However, if the total is still a big number, consider splitting it out or seeing what should be allocated to other departments.

If you already have operating costs split, good for you.  Take a look however and make sure:

•    See if any one area, like administrative, has grown to a large number.  As you grow, you may incur expenses in areas you never had to spend much on before.  It could be time to split those costs out into a separate area.
•    Do you have costs in administrative or personnel areas that really need to be moved or allocated out to other departments?  Common ones that are missed are payroll taxes and fringes.  If not allocated, you understate your total personnel costs in each department.

If you make some changes, do you go back?  I suggest you go back to the past year.  That way you have a meaningful comparison between years.  You can spot the trends better.  Your accountant or controller may balk at this, but go ahead and have them do it.  You are not changing your total operating expenses last year; you are just regrouping these costs.  You want to see trends now instead of waiting for a year to have more history. 

Now that you have your operating costs split out, use them.

•    If you have a one page financial summary, consider splitting out the operating costs into the departments you set up.
•    Look at your budget with the same groupings in operating expenses.
•    Modify your dashboards if you have one.  You may want to track certain key operating costs weekly, rather than wait for month end.
•    Notice the trends by department in your monthly financials.  Then dive deeper into departments where costs are climbing.  For example, see if IT costs are holding steady or climbing.  If growing, look at the detail and see where.

        

Your reporting package may dump operating expenses into one large bucket.  All the operating costs come down to one total, such as total administrative or operating costs.  Instead, you may have split your operating costs into a couple different groups, but you still have a big chunk in total administrative costs.  Or you have costs that are part of the administrative total that really belong somewhere else like marketing.
•    It is harder to see bigger trends by area.  Are total marketing costs climbing?  You may miss it.
•    It is tougher to summarize.  Anything that is summarized to a one page financial summary is just total operating costs.
•    It does not match how you operate.  You have different department heads, not just one large administrative department.  It does not line up with what people have control over.
•    It understates some department costs.  You may have some costs that are not allocated out to individual departments.  You do not know what you are really spending in each area.

You end up spending more on some operating costs than you intended to.  You may not get hit with big steps.  You might fall for the creeps.  Little jumps here and there.   Eventually some operating costs are out of control.  You spent more than you ever intended to.