Smart Spending: Practical Ways to Lower Your Business Expenses

Too Many Things to Pay For? How to Cut Out the Noise and Reduce Your Costs

How is it that we can be so involved in running our businesses that we forget to take care of the bottom line?  It is important to manage our finances and to maintain healthy margins for good cash flow and profit. Because why else are we in business?

Money in; Money out!

Last week we posted an article full of ideas to expand your revenue. Managing your expenses and keeping them reasonable is equally important.  It’s smart to run a lean organization, keeping systems streamlined and efficient.

Here are some practical strategies to help you cut out the noise and reduce your costs.

1.      Analyze Your Expenses

Your first step to optimizing your expenses is to understand where the money is spent. Conduct a thorough review of your expenses over at least the last twelve months. Your accountant categorizes expenses into indirect costs (rent, salaries, insurance) and direct costs (cost of goods sold, shipping, merchant fees and handling).

Review your gross margin – simply put, gross margin is the difference between the revenue that your business earns and direct costs. Your gross margin should land somewhere between 40 to 60%. Seems a high number until you deduct all those other indirect costs! 

Next, look for patterns of spending. For example, perhaps are you spending your money on software subscriptions or rental equipment that are no longer used?

It’s worth becoming fully familiar with your numbers. Not sure what you are looking at? Reach out and ask your accountant. You need a clear picture of your spending patterns to be able to highlight areas where you can adjust.

2.      Prioritize Essential Over Non-Essential

Also take a long cold hard look to distinguish between essential and non-essential costs. Essential costs are those that directly impact your business operations and customer satisfaction.

Non-essential costs are those nice-to-haves that will not significantly affect your core business.

Cutting or reducing non-essential expenses will free up cash for more critical uses.

3.      Streamline your Business Processes and Embrace Technology

Evaluating how your business rolls is the most effective margin expanding exercise you can undertake. Each process, each action in your business should serve a purpose.

Mapping out your processes always brings insights. For example, identifying how orders are received and fulfilled, identifying your service or project work flows, or how your employees are deployed and how they communicate, will identify tweaks that you can make to streamline your operations.

In the accounting world we often work with clients who are manually managing their invoices and receipts. Software now streamlines accounting processes and makes it possible for us to reduce our client’s costs significantly.

In the service world, mobile software facilitates dispatchers deploying service providers and allows the service provider to communicate back to their home base and to bill the customer all in one quick move.

In any business, revising processes and finding ways to streamline every little action can make a big difference. Move the label printer close to the shipping desk so that your employees don’t have to get up and walk over every time they book a shipment, saving time.

Invest in the right technology. Project management tools improve efficiency and collaboration, cutting down on wasted time and resources. Automating inventory management is a time (and product) saver and makes it easy to ship product to your customers. 

4.      Negotiate with Suppliers

Don’t be afraid to negotiate with your suppliers. Almost every supplier has a discount structure. Long-term contracts or volume discounts reduces your costs which in turn expands your margins.

You can also negotiate just-in-time production or drop-shipping arrangements with some of your suppliers. Then, if your suppliers are managing the shipments and storage arrangements, your need for space and handling is reduced. Watch out, though. Some suppliers charge hefty fees.

Standardizing shipping arrangements will bring you opportunities. Is there another shipper in your area that can handle your shipments for lower cost?  Can you negotiate discounts if your shippers only pick up once a week? 

Building strong relationships with your suppliers can lead to other cost-saving opportunities.  Ask them!

5.      Outsource Work

Outsourcing is one of Guildstreet’s favourite topics. Since so much work can now be accomplished remotely, many business models are shifting toward outsourcing or contracting most and sometimes all functions.

Platforms such as Fiverr or Upwork mean that smaller businesses access a range of skills for one-off projects within budget.

Outsourcing is a cost-effective way to manage ongoing functions and to access a greater level of expertise.  IT support, virtual assistance, marketing, payroll and human resources management are commonly outsourced functions.

Guildstreet’s business is all about providing outsourced accounting services - from basic accounting to virtual fractional CFO Services. Our clients have access to a higher standard of expertise at less than the price of hiring even one employee themselves.

Explore working with freelancers and specialized businesses. You can tap into a world of expert knowledge and skills without committing to significant payroll and overhead costs.

6.      Implement a Remote Work Policy

Is your business model adaptable to implement remote work?  Remote work is great for many employees and will significantly reduce your overhead. Even a hybrid remote work plan will reduce costs – think shared workspaces.

Clearly, adapting to a remote work policy takes some preplanning and expert human resources management advice. For example, salary expectations would shift from hours in the office to work accomplished and work milestones. 

Would your organization benefit from a flexible workforce?

7.      Cut Down on Energy Costs

If your business does have a brick-and-mortar presence, energy costs add up quickly – be mindful of your usage.

There are many simple changes you can make from installing energy efficient devices and lighting, adapting and automating heating and cooling patterns, and rewarding employees for turning off equipment that is not being used.  All sources of significant savings. 

And if you have a big old office, warehouse or garage, you already know about the benefits of good insulation.

8.      Implement a Budget

Budgets can be a little bit of magic for growing your business – each budget is a target for sales, and a plan for spending.  Planning ahead and putting that budget plan on paper is a beneficial tool for cost management, but only if you consistently use that plan.

Using the budget plan means comparing your budget items regularly against what you realized in your revenues and what you actually spent. Then you can adjust your spending and stay on top of the financial health of your business. 

Be sure to review your budget with your accountant regularly to track your progress through your financial year. Your accountant has insights and knowledge that you can tap into to enhance the productivity of your business.

By taking even a few of these steps, you can reduce unnecessary expenses and focus your resources on what truly matters for your business.

Contact Guildstreet Today!

Guildstreet is here to support you through all the complexities of financial management letting you concentrate on achieving your business goals.

We are a team of experienced accounting professionals here to help you cut out the noise and to make informed financial decisions. 

If you’re ready to take control of your business expenses, contact us today. Feel free to reach out to us for personalized advice and solutions that can help you streamline your finances and enhance your profitability.  The first call is always free!

Guildstreet - Your Partner in Accounting Excellence.