Cost cutting is a great exercise to send more money directly to your bottom line. However to do this, you need to have an understanding of what is being spent and where.
As business consultants, we’ll review the finances of the business but often find they’re not being tracked and managed. Many clients leave the financial stuff to the accountant, after all they’re the experts. While this may be the case, the expert on what the expenditure is generating for your business, is YOU. Not reviewing the outgoings of a business can result in paying for services no longer used.
In this blog I’m sharing 4 tips to effectively cut costs in your business and as a direct result, increase your profits.
1. Monitor what’s being spent
It may sound obvious, but look at your cash flow on a monthly basis. It’s easy to focus on income and sales but don’t forget that your costs directly impact profit! So, review all the outgoings, do you need and are you using all of them? If not, you can start your cost cutting exercise by getting rid of them!
2. Get a bookkeeper
If bookkeeping is one of those tasks that never makes it to the top of the to-do list, then hire one. It really is that important. A bookkeeper will provide a monthly report on income and expenditure, so you can see what is being spent. With this information, you can then perform your cost cutting exercise.
3. Understand what each cost is doing for your business
Categorising expenditure will help highlight which of your costs are business essential and which are not.
Some things like rent, rate and materials are unavoidable. Marketing activity such as advertising, social media management and so on are essential only when they generate income.
Create a list of costs that should be generating income and review the return on investment for each. Create a plan for any activities that aren’t meeting your expectation, can anything be done to improve performance? If the answer is no, cull it. My recent post, Profitable Marketing will give you some advice on this process.
4. Value for money
Do take care to ensure that if you decide to change a service provider due to cost, that you’ll still get the required service. Sometimes cheapest isn’t always best. Look out for next month’s post, you get what you pay for, for more information on this.
So follow these steps and take control of your expenditure today! Keep following the advice to make sure you look after it in the long term. If you need any help implementing these tips, then call me to arrange a free business review.
Finally, with your bookkeeping process in place, read on to my next blog which looks at budgeting, for the next level in the financial planning of your business. With a budget in place, you can achieve your goals.
Have a great month!