Do you remember back when you first started in business? Your expenses were likely a fraction of what they are now, but no doubt so was your income. So now that your income is higher, your expenses must be higher too, right? Not necessarily.
Consider Parkinson's Law, an adage that proposes that our demand for a resource increases to meet the relative supply, which is why when one is given two weeks to complete a project it takes two weeks, and when one is given eight weeks to do the same project it takes eight weeks.
The Profit First plan, a system for growing your business profit, takes Parkinson’s Law into consideration, and has you put aside your profit, any tax, plus your personal compensation including wages, dividends and car allowances, into separate bank accounts. Then you allocate whatever is left to your ‘operating expenses’ account for spending, forcing you to reconsider your process and business costs. Give us a call if you want to learn more about the Profit First system, or head to our Profit First page for some more information.
In the meantime, here are some avenues to explore to reduce your operating expenses, so you can finish off the year with higher profit:
Big Ticket Items
Check any expenses that are consistently over a few thousand dollars. Can they be reduced or cancelled? Can you negotiate with your supplier for a better deal? Is there an alternative supplier that would be cheaper or better?
Subscriptions on Autopay
Is money going out of your bank account automatically and you’re not quite sure why? Check any subscriptions you have and whether you actively use them. Is the subscription adding value to your business? Try cancelling some and see how you go - you can always resubscribe if you find you need them.
Marketing & Advertising
Marketing can seem intangible at times, but there are metrics you can use to determine if what you’re pouring money into is working to grow your business. Make sure you are using a system that tracks your conversion rates, so you can determine your return on investment. If you aren’t sure, it might be time to try software that tracks these metrics, or perhaps you could take advantage of free avenues of marketing for a while, including social media, and re-evaluate your marketing strategy down the line.
Better Utility Rates
It may be obvious, but shopping around for better deals on your insurance, telephone and internet plans, electricity and gas services is a great way of paying less for, more often than not, better deals. It can be a pain to churn through provider comparisons initially, but worth it in the long run.
Too Many or Ineffective Employees
Parting with employees is tough on a personal level, but often necessary for the growth of your business. Do you really need as many employees as you hired to do the amount of work you currently have? Or are you spreading the work too thin, and short-changing your more effective employees? Additionally, there are so many inexpensive outsourcing options today that can be just as effective and often more affordable.
Your occupancy expenses can be tough to reduce, as reorganising can require somewhat drastic changes to the way you run your business. But you may be able to downsize or enable employees to work from home. Working remotely is a growing trend for good reason; no commuting, which frees up time, lower stress levels, childcare costs can be reduced, and it opens up a huge pool of talent from all over the world. Software enables easy communication with your team and your clients, and if you miss collaborating with your co-workers, there are shared co-working spaces where you can meet every now and then to catch up for a fraction of the cost of a traditional office.
Hopefully this list will give you some ideas about ways you may be able to reduce your business operating costs, but reducing your expenses isn't the only way to increase your profitability - increasing your income is also important. Of course, please give us a call to talk over some of these ideas, or if you want to learn more about the Profit First method.