A lot of people believe that the goal of having a business is to generate profit. While this is definitely true, another goal—but a challenge at the same time—is to learn how to reduce business expenses, too.
As we collectively navigate a global crisis and see an increase in our livelihood expenses, it’s more important than ever to be in control of your finances.
The generation of profit usually goes hand-in-hand with how CEOs strategise and tweak their business model. They need to see that unnecessary costs are cut, that there are healthy financial margins in their accounts, and that they optimise how their funds are handled.
Let’s explore more about how you can effectively reduce business expenses with some simple steps:
There are various reasons why knowing how to reduce business expenses is important for you and your company. As mentioned above, a primary business goal is to ensure you have a healthy profit margin.
Achieving this goal requires you to balance your business expenses with what you charge customers in an effort to make a profit.
Ultimately, you want to increase your business revenue. However, it’s not always easy to do this, nor is it always guaranteed. That’s especially true when you are testing new marketing strategies or hiring more staff; often you’ll be spending money to make money, and you’ll have to be patient before seeing substantial.
Whilst you keep busy working and waiting for things to balance out, you need to be careful not to spend more than you earn.
It’s also equally important that you do not reduce your expenses to lower them simply for the sake of it—by keeping an eye on your income and outgoing finances (something made easier with job management software), you can make better decisions and understand how these impact your operations.
By learning to reduce costs, you’ll ultimately improve cost management, overall. As we’ll explore, you can adjust costs by looking at your suppliers and negotiating with them on an as-needed basis or even prioritize some supplies over others. Stock and Inventory Management software can make a huge difference in figuring these details out.
Your main goal is that your company gets the best value for what you acquire and use. It’s perhaps the best way to avoid overpaying for any services or goods you use in your workday.
Suggestions for reducing business expenses
Now that you know the rationale behind reducing business expenses, we’ll share with you some suggestions on how to do it.
While some solutions may sound small, a little can go a long way, especially when every penny matters!
A good rule of thumb when dealing with suppliers is always to be ready with at least three different quotes for your purchases. This move gives you a good market view and helps you decide what’s best.
Seasoned business owners reveal that their reviews often make them see whether they have overpaid a supplier or not. Therefore, make this step a priority in your efforts to reduce business expenses (or maybe even hire someone to investigate and do the task for you).
2. Hire a cost savings consultant (as needed)
If you can afford one and are too busy to look at the day-to-day tasks of cost reviews, you may want to consider hiring a cost-saving consultant. Sometimes, when you’re kept as busy as you likely are, it’s all too easy to miss the finer details.
However, these details could be costing you a lot of money. As such, a cost-saving consultant will function as your third-party reviewer and their perspective could help you out.
This person will take an objective look at your expenditures and assess areas where you can still cut costs, identifying opportunities to save.
3. Consider your use of core utilities
Whether on a workspace lease or if you own the building, you still have to pay your utility costs. Some simple best practices and tips can go a long way to saving you money in the long run and below, we detail some ways you can look at reducing business costs via utilities:
By using energy-efficient light bulbs on your business premises, like LED lights, you can cut costs; they tend to last longer and use less energy, whilst still providing more than enough light.
Simple steps, like getting your team to turn off all equipment they do not use, rather than leave it on standby, can make an impact, too. You and your employees can do this and make it a habit; if not, you might still need to invest in occupancy sensors.
So that you can save money on electricity costs, we advise you to check out the various suppliers in your area to compare their rates for usage. Doing your due diligence can help you strike a better deal with them and negotiate your costs.
As the price of energy soars, it’s important to check and see what help is out there from providers, and the government, too, to see what support you can get. Both personally and as a business.
Lastly, your utility costs include your water usage. You can apply the same efforts to your energy costs here. For example, you and your employees must habitually turn off water taps you do not use. Your company must also check every leak; otherwise, faulty pipes and leaky taps add to water waste and higher costs.
Many field service businesses will be well equipped to spot these things for themselves, but just like any homeowner, it can be easy to overlook and assume everything’s ok when it’s not!
4. Reduce Your Business Costs to Raise Profits
One of the most important things regarding reducing business expenses is to think about various ways to increase revenue. This means thinking bout how to raise profits and make the most of every sale.
By reducing expenses and bringing in more money your profits should increase. First, you need to optimize your manufacturing operations, supply chains, facilities, and personnel without sacrificing quality.
Another way is to try and maintain your prices so you are more certain of consistent income. You can also consider opportunities to upsell to customers, too, as this will actively help increase profits.
Businesses usually conduct a Cost of Goods Sold (COGS) evaluation to determine areas where they can still reduce costs. Conducting such an evaluation will help you oversee many things—including overhead costs, materials, and direct labour. With it, you can see where you can reduce costs and find opportunities to sell more and set more profitable prices.
The Bottom Line
We hope that our suggestions and a brief explainer of the importance of reducing business expenses will help; they should be especially helpful if you’re starting as a small business entrepreneur.
Don’t forget that the better you handle your business expenses, the easier cost management is in the long run.
For even more help with your finances, particularly when it comes to getting paid on time, take a look at Commusoft’s guide! Get free downloadable templates so you can send an invoice that customers will pay!
Hi! I'm George Relish
This week's post comes courtesy of Quidable. Applying and qualifying for a loan can be a mentally and emotionally taxing process, but Quidable aims to make it easy, safe, and secure!