How to cut your business costs without compromising on quality

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Cutting back on spending can be one of the quickest ways to bring your business back in the black in terms of cash flow but you need to be sure you’re not shooting yourself in the foot. 

Some expenses, like materials and staff, are important because you couldn’t bring in revenue without them. Others can be reviewed and eliminated or reduced in order to free up cash flow. 

If you haven’t done so recently, now’s the time to review your business budget. You may be surprised at some of the things you are paying for. 

Here are some of the questions you can ask when reviewing your budget. 

Does this bring me revenue now?

Some things seem like nice-to-haves but if they are not income-generating they need to be reviewed if you want to save money.

Areas where you may be able to cut back include: 

  • Office stationery (reduce your orders or look to switch suppliers)
  • Software (you may be subscribing to a platform which your team doesn’t use)
  • Company vehicles (are they on the road enough to validate the cost?)
  • Air conditioning and utilities (will more moderate use make a difference?)
  • Office space (with people able to work remotely, could you relocate to a smaller premises and switch to a hot-desking setup?)

By reviewing every monthly expense, it may be possible to reduce expenses by up to ten per cent without affecting operations. 

These decisions will be easier to make if you have made a habit of measuring return on investment. For example, if you’re spending $500 a month on software, do you have a clear picture of how much revenue is generated because of it?  

Do I need to spend this money to help my customers?

Expenses are essential if they help you get the job done. Some costs which are not optional for your business may include: 

  • Equipment
  • Travel expenses (although there may be ways to save)
  • Supplies
  • Staff
  • Subscriptions
  • Computers and IT

If cutting back on an expense means your customers will experience a drop in service or product quality, think twice. 

If I spend this, will it guarantee me future customers?

This question relates to your marketing. Many businesses set up their marketing and walk away, with the assumption that it will work in the same way, month in, month out. 

These days, customers are moving targets. What worked last year, like a newspaper ad, may not work for your business this year. Instead of a brochure drop, you could get more ‘bang for your buck’ with Facebook or Instagram ads. 

Ideally, you will regularly review your marketing expenses and the effectiveness of the campaigns you use. There could be ways to reach more people by spending less so don’t be afraid to examine your approach often. 

Will this expenditure improve cash flow? 

Return on investment is key when reviewing expenses. 

If you’re looking to cut back, things like fresh flowers at reception may need to go. These look lovely but the reality is they don’t serve to bring in an injection of cash. 

Every item on your expenditure list should be able to ‘speak’ for itself when it comes to confirming its value to the business. 

How to cut back on business spending

You should be reviewing your business expenditure on a regular basis and always looking for ways to redirect spending to areas which will improve revenue, profits and growth. 

If you’re looking for ways to spend less, here are some more ideas: 

  • Do a stocktake of what’s selling. Are there items which can be cut from your product list or which don’t generate enough revenue to be worthwhile? Similarly, do you have a product which is flying below the radar as an easy win?
  • Ask your customers what they love and what they want more of.
  • Bite the bullet and get rid of employees who aren’t pulling their weight.
  • ‘Fire’ the customers who are more trouble than they are worth.
  • Review your supplier terms and see if you can get a discount for paying on time or early.
  • Switch to using freelancers or contractors for jobs which you don’t need on a weekly basis
  • Check which accounts have interest charges associated with them and pay them off or switch to a provider with a lower rate.
  • Form a partnership with another business and buy some goods or services in bulk at a discount.

As a business owner, it pays to be obsessed with tracking your money. You need to know which spending practices make good sense and what can go. If possible, redirect the money you save to revenue-generating areas, or put it away for a rainy day. 

Want advice about organising your business finances? Contact CBQ Financial

 

Read more: Top five accounting lessons learned from COVID

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