Forget about making hundreds of thousands of dollars in profit – just keeping your profit positive is often struggle enough.
In the modern world, businesses have to continuously find ways to cut costs and make their processes more efficient in order to improve their bottom line.
Making a profit, of course, starts with making revenue, but there are companies out there making 7, 8, 9 figures in revenue and still struggling to maintain consistent, reliable positive cashflow. The solution? Cutting business expenses to maximize margins.
There are many different types of business expenses. Perhaps the largest is operating cost. Generally, your goal is to find ways to reduce these costs without sacrificing quality or productivity.
There are all sorts of areas where businesses can save money, but it is important to focus on the right areas. It doesn’t make sense to save $100/month on office supplies if you’re spending $10,000 on inventory that is sitting in a storage unit because you don’t have enough space.
In this article, we will discuss the top 5 ways to reduce business expenses and some common do’s and don’ts of cutting costs, as well as going through some signs your business expenses are too high.
Let’s get started!
1. Review Your Business Expenses Monthly
This is the first and most important step in reducing your business expenses — if you don’t know what your expenses are, there is no possible way you’ll be able to cut your costs in an effective manner.
In order to see exactly what your businesses monthly expenditure is, you need to sit down and go through all of your outgoings in detail. This includes everything from rent and utility bills, to the cost of materials, staff wages and marketing spend.
Dig out all of your receipts, invoices and bank statements for the last month and categorise your expenses into different areas. This will give you a good overview of where your money is being spent and whether there are any obvious areas where you could save some cash.
Simply being wary of what you’re spending money on can save you thousands. You may have professional subscriptions that you’ve been spending money on for months, and even years without realising.
Some businesses check their receipts and can be in for quite a shock at what they find!
This is usually a long and arduous task due to the amount of documentation involved, and the meticulous nature of the work — but it is essential if you want to get a handle on your business expenses.
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2. Reduce Costs In Each Expenditure Area
Once you have an idea of where your money is being spent, you need to start looking at ways to reduce these costs.
This may involve negotiating better deals with suppliers, shopping around for cheaper utility providers or downsizing your office space to save on rent.
It’s important to remember that even small savings in each expenditure area can add up to a significant amount of money over the course of a year, so don’t underestimate the power of this exercise.
For example, if you find that you’re spending $500 per month on office supplies, and you’re able to reduce this cost by 10%, that’s a saving of $60 per month, or $720 over the course of a year. The small things do add up!
3. Cut Down On Unnecessary Expenses
One of the quickest and easiest ways to reduce your business expenses is to simply cut out any spending that is unnecessary or frivolous.
This may include expensive lunches with clients, excessive travel spend or those little extras that always seem like a good idea at the time but never really add anything of value to your business.
If you find yourself questioning whether an expense is necessary or not, it’s probably best to err on the side of caution and cut it out completely. It’s always better to be safe than sorry when it comes to business spending.
4. Use Technology To Your Advantage
In the modern world, there is an app or piece of software for almost everything – so use this to your advantage when it comes to reducing your business expenses.
For one, there are now plenty of free or low-cost accounting software packages available that can save you a fortune on accountancy fees.
Similarly, there are numerous project management and time tracking tools available online that can help you to keep track of your work and avoid overspending on outside contractors.
Do some research and see what technology solutions are available for your business – you may be surprised at how much money you can save.
A few great examples of apps that can save your firm money and reduce business expenses include:
- Xero: Online accounting software with a range of features to help small businesses save money and time on their finances.
- FreshBooks: Another excellent online accounting tool, designed specifically with small businesses in mind.
- FreeAgent: Yet another great option for small business accounting, with a focus on helping businesses stay within budget.
5. Outsource Where Possible
In many cases, it can be more cost effective to outsource certain tasks or projects to specialist providers, rather than trying to do everything in-house.
This is particularly true if you don’t have the internal resources or expertise to complete a task effectively – in which case, it’s often better to hand it over to someone who does.
Outsourcing can also be a great way to save money on things like office cleaning, IT support and even accounting and bookkeeping. Rather than employing full-time staff to carry out these tasks, you can simply outsource them to specialist providers as and when you need them.
With the rise of remote working, it means that there are huge numbers of talented freelancers and contractors out there who can do a great job at a fraction of the cost of full-time employees.
Do’s And Don’ts Of Cutting Business Expenses
As a business owner, you are always looking for ways to reduce expenses and increase profits. However, there are certain dos and don’ts when it comes to cutting costs. Here are some tips on how to save money without sacrificing quality or service:
Do negotiate with vendors: don’t be afraid to ask for discounts or better terms from your suppliers. They may be willing to work with you if it means keeping your business.
Do take advantage of tax breaks: there are many tax breaks available for small businesses and even some of the larger ones. Talk to your accountant to see if there are any that you can take advantage of.
Do shop around: don’t just accept the first price you are quoted. Shop around and compare prices before you make any decisions.
Don’t skimp on quality: just because you are trying to save money doesn’t mean you should sacrifice quality. Your customers will notice if you cut corners and they will take their business elsewhere.
Don’t forget about long-term costs: when you are looking at ways to save money, don’t forget about long-term costs. For example, if you buy cheap office furniture, it will probably have to be replaced sooner than if you had invested in higher quality pieces.
Don’t forget about your employees: your employees are your most valuable asset. If you cut too many costs, you may find it difficult to retain good employees. Offer them competitive salaries and benefits, and invest in their training and development.
By following these tips, you can save money without sacrificing quality or service.
Signs Your Business Expenses Are Too High
As a business owner, it’s important to keep a close eye on your spending. After all, the more efficiently you run your business, the more profitable it will be. Here are some warning signs that your business expenses are too high.
1. You’re always running out of cash
If you find yourself constantly scrambling to come up with enough cash to cover your expenses, it’s a sign that you’re overspending. This is especially concerning if you’re not generating enough revenue to cover your costs.
2. You’re using too much credit
Relying heavily on credit to finance your business might work in the short term, but it’s a sign that your expenses are exceeding your income. This can put you at risk of financial difficulties in the future.
3. Your profit margins are shrinking
If your profit margins are shrinking, it means that your costs are increasing faster than your revenues. This is a red flag that you need to take action to reduce your expenses.
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4. You’re constantly stressed about money
Worrying about money all the time is not good for business. It’s a sign that your finances are in bad shape and could negatively impact your work environment and culture.
5. You’re not investing in your business
If you’re not investing in your business, it’s a sign that you’re not confident in its future. This lack of investment can lead to a downward spiral, as your business becomes less and less competitive.
If you see any of these warning signs in your business, it’s time to take action to reduce your expenses.
Reducing business expenses is no easy task: it requires a careful and strategic approach.
But with some careful planning and execution using the tips and tricks above, it’s possible to save your business money and get your bottom line looking healthier than ever!