Large or small, established or just starting out, every business can benefit from better expense management and cost reduction. We explore some common sense, as well as some more creative and innovative ways you can cut back on the expenses that don’t directly increase revenue, so you can reinvest your profits where they belong – in growing your company.
Keep detailed records
It’s impossible to properly manage what you don’t properly measure – and keeping accurate, detailed financial records is the only way to track, monitor and control your expenses in the long run. Compare the various business expense management software options out there – most offer free trials, and there are even free platforms available for small startups which offer the basics.
Once you have sufficient data, it becomes possible to easily spot trends and areas where you can reduce costs that you wouldn’t have been able to see otherwise.
Don’t cut back on expenses which could increase sales or save you more money in other areas
Cutting costs for the sake of cutting costs without considering the impact on the rest of your business is never a good idea – always factor the return on investment into your decisions. Rather look for alternatives that offer a better ROI or give you more value for less.
Decreasing your marketing budget, for example, might seem like a good idea – but have you done the math on how many new customers you bring in each month on average as a result of those marketing efforts?
Split your expenses into fixed and variable costs
Dividing all your expenses into fixed and variable costs might seem like a pointless exercise, but it’s a great starting point for formulating a cost-cutting strategy. Fixed costs – things like your rent, insurance, and monthly salaries – require a different approach to variable costs like raw materials, deliveries out to customers, sales commissions, etc.
Look at solutions to permanently reduce fixed costs – such as renting a smaller office space or allowing some of your employees to work from home, shopping around for more affordable insurance, consolidating your loans etc. Online office brokerages like Offices.co provide access to a number of flexible workspaces of all shapes and sizes, allowing your business to quickly and easily downsize to reduce costs.
Variable expenses can be reduced through renegotiating with long-term suppliers or implementing behavioral changes – such as reducing your electricity consumption.
Know when to hire, and when to outsource
As a general rule, it’s usually better to outsource as many of your non-core business activities as possible – especially if you shop around for the best rates. Partnering with a reliable company that offers remote IT support in Perth may seem like taking on an additional cost, but for an SME, it’s still vastly more affordable than hiring a full-time head of IT.
On the other hand, this needs to be weighed against the value a permanent employee could offer. An example might be hiring a full-time assistant for your top-performing sales rep so they can do what they do best without having to deal with admin and paperwork.
In this case, the increased revenue that the sales rep brings in each month may cover an additional employee’s salary several times over. And on that note…
Train staff internally wherever possible rather than hiring experienced professionals
If you’ve got an enthusiastic, talented, and ambitious junior employee already working for you, it makes business and personal sense to help them broaden their skillset. Have a chat with all your staff and get to know where they’d like to see themselves in a few years’ time, and where your goals align.
Of course, it’s not always possible, but looking for these kinds of opportunities can greatly improve morale and productivity while simultaneously reducing expenses associated with hiring more experienced new staff.
Make better use of technology
Whether it’s using email for your less important communication and saving phone calls for clients or swapping hefty travel costs for a video conference, technology is one of the greatest tools you have at your disposal for cutting back on those little costs that add up each month.
The more administrative tasks you can shift to electronic or cloud-based solutions, the less you spend on stationery. The better you track and analyze business data with appropriate software, the more informed your business decisions become.
Put at least 10% of profits aside for an emergency fund or safety net
Once you’ve got a firmer hold on the purse strings and have successfully managed to reduce your business expenses, what do you do with those additional funds each month? If you haven’t got them earmarked for immediate R&D, set them aside in an inflation-beating savings account.
Should there be a sudden downturn in the market or unexpected emergency, having that safety net available can prevent you from having to take on debt or cut jobs?