In this current state of the economy, every penny counts, and even the smallest increase or cost cutting can impact a business.
Having that in mind, operating within a certain budget will help maintain the growth of your business, and in order to do that you may have to consider reducing your business expenses.
This can be tricky especially when you are not certain where to begin and that is why I decided to share 12 ways you can reduce expenses that can save you money in the long run.
1. Buy things annually
This takes up more cash flow up front but can save in the long run. You can prepay for things like software, insurance, or rent. Make sure the savings are worth it and you are not strapping yourself for cash flow.
2. Shop around
Make sure you’re getting the best price on things you are buying. This may lead to you considering cheaper office expenses through a big box store rather than Amazon or purchasing free or cheaper software.
If you are into deliveries, you can opt for a used vehicle rather than a new one. The list is endless however the idea is to find a cheaper alternative that will help you save cash.
3. Analyze Staffing costs
No one wants to talk about this but it is important to at least know where you stand. One way to do this is to figure out how much an employee costs the company per hour and how much income they generate per hour. This is not always cut and dry when you have administrative staff but you can at least compare and see when perhaps duties can be shuffled around in light of your calculations.
4. Negotiate with vendors
The great thing about having a relationship with your vendors or buying locally is that if you are buying consistently or in volume, you can negotiate for cheaper rates. This actually leads to another way to reduce costs.
5. Barter
You can decide to offer your service in exchange for another service, for instance, you get your lawn mowed for free in exchange for help with the lawn company’s social media. One tip to consider when bartering is to make sure the exchange is even and that you get everything in writing and apply a time limit where you can naturally both reevaluate if the barter still benefits both parties
6. Review software and subscriptions
If you’re like me you sign up for things often enough that sometimes you forget all the accounts you have all over the place. This can easily happen with software subscriptions. In order to ensure you are not spending on unnecessary subscriptions, be certain you know who you are paying and what for and look out for software to take the place of the three you are paying for.
7. Analyze the ROI on professional development
If you’re like me you love professional development. I love to learn and I love to meet other entrepreneurs but if you’ve been in the online space for any length of time you have probably joined a program or bought a course because “everyone else was doing it” without really thinking about whether it was really something you needed or if it had any calculable return on investment.
Be keen about what resources you purchase in the name of professional development.
8. Evaluate your cost per lead and look for cheaper ways to secure leads
How much does it cost you to secure a paying customer? Are you paying for ads, carrying out organic marketing, or sending out emails?
Evaluate how much money is being spent to spread the word on your business and if it is costly think about alternatives like referral programs or affiliates.
9. Figure out profit margin per product and cut underperforming products
You may need to do this more manually but this is essentially pulling an income statement or profit and loss per product (P & L). Understanding the true income and expenses for each product will help you get really clear on what products are draining your business dry.
With this in mind, you can then cut out the products that don’t serve you or analyze how you can tighten things up.
10. Ask your staff where to cut or if there are trade-offs that may be more beneficial to them
Ask your employees’ opinions on company gatherings like those staff lunches and ask if they would rather get something else like a specific software that would be super helpful.
They may not care about a fancy copy machine and would rather individual printers or perhaps they don’t care about company swag but would rather ping pong table in the break room.
This does not only apply to trade-offs, but your employees can also tell you what they need and don’t need and probably have ideas of what can be cut and what can’t
11. Don’t carry balances on credit cards or pay them off completely
Interest and credit card fees may not find themselves on your yearly budget but they certainly cost your company money if you are carrying balances.
Work on paying them down and completely off can save you money in the long run.
Also, using a credit card that earns points or cash back is another way to say your company money. There are some great programs that can really add up so think about moving some of your fixed costs and recurring subscriptions to the card to consistently be earning rewards.
12. Expense Audit
In order to carry out an audit, you need to pull and detailed a profit and loss statement for a period of time. If you’ve never done this before I would say pull it for the first 6 months of this year.
The next step is to make sure all the categories are expanded and you can see each translation under each category if you are savvy with reports feel free to sort these by vendor name under each category so it is easier to evaluate.
You can then print or pull it into a google sheet or excel spreadsheet, and select an option that works best for you.
Once that is covered, go line by line and assign a category/tag to each one. These tags can be:
- Profit Generating tag- This tag is for expenses that help you make you money
- Necessary – These don’t generate profit but are necessary for instance insurance
- Cancel – Use this tag for products/services you can get rid of completely
- Replaceable – For something cheaper or free or combine features
Since I’m a numbers girl once I have completed the above steps, I love total and figure out the percentages of the total but you don’t need to go that far.
Once you have all the items start with canceling all the items you marked cancel then start working on the replaceable category and do your best to reduce what you can.
Next look at the necessary is there anything you can do in a less expensive way or more efficient way or even barter for.
Lastly, look at your profit-generating items, and analyze if there is any way to pull more income from what you are spending or whether you can make more if you spend more without impeding cash flow or fulfillment.
Did you find a tactic that works for you amongst these twelve? I encourage you to think about a couple of ways you can reduce expenses in your business so you can create more profit in your business and be more financially independent.
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