The Process of Cutting Costs and Examining Your Expenses
One thing small and medium sized entreprenuers can learn from Fortune 500 companies happens to be the practice of regularly seeking to cut costs. This is something you should be doing a minimum of twice yearly, if not quarterly. Look over your entire expenses and identify ways to lower your costs.
Most businesses have profit margins of around 10%. That means that if you can cut your expenses by even just 5%, your savings and the effect on your bottom line is monumental.
So how do you cut your costs?
Begin With Your Routine Purchases
What items do you purchase on a daily, weekly or monthly basis?
These could possibly be employee lunches, coffee, replacement parts, electricity or any other item that you pay for every day or month.
Ask yourself: Is this a necessary expense? Can it really pay off?
Check Your Competitors’ Pricing
Get a sense for what your competitors are paying their suppliers. Would you conclude that you’re paying more? If so, it might be time to renegotiate your supplier agreements and to find new suppliers.
Office Space and Costs
Are you currently using all the office space you’re renting? If not, consider sub-letting out part of the space. Furthermore you may need to consider relocating or renegotiating your lease.
The Price of Capital
Have you been using credit? If so, are you getting the lowest rate possible? If the price of capital is regularly eating into your profits, it would be a good idea to look into selling some equity to pay off some debt.
Your Accounts Receivable Systems
Are your accounts receivable systems in place? Do you have systems in place that ensure you collect all the money you’re owned in a timely manner?
Any accounts that have been due for 3 months or longer should be considered a priority. Any accounts which are overdue by 60 days or longer ought to be followed up on relentlessly.
Money not received today costs money. It reduces your cash available and puts your business on the line.
Evaluate Taxes and Insurance
Are you paying an excessive amount on your insurance? Make sure your unemployment insurance, workers comp insurance and medical insurance classifications are right. If you are truly paying a moderate risk rate when everyone works in an office, you’re overpaying.
Hire an accountant who understands the tax code and can find you discounts. A good accountant a little more than pays for him or herself.
If your business is admittedly running out of cash, you could be forced to look into cutting salaries. If you have to, start with cutting your own salary.
Explore other forms of employment: Look at temp workers, outsourcers and part-time workers as an option to salaried workers.
If you take careful inventory of your expenses every 3 to 6 months, you’ll develop a habit that’ll pay off handsomely over the course of your business.