We’ve all heard the saying, “You have to spend money to make money.”
The truth, though, is that this only applies to investments; financial outlays that will help you to generate more income. When it comes to general expenditures and consumables, sometimes making cutbacks to your spending is the most profitable move.
Overhead costs are a necessary part of business, but with about half of all small businesses failing to survive five years or longer, it’s important to ensure that you’re making financial decisions that are in the best interests of your company; and to carefully watch your outgoings.
Gene Marks, the founder of Marks Group, a technology consultancy, is one business owner who recognized the significant benefits of maintaining low overheads. One day it dawned on him that he was just sitting in an office that was costing nearly $30,000 a year in rent while his employees were out working with clients. Marks made the decision to get rid of the office, and make his employees virtual. He also replaced the landline with an internet-based phone and replaced computer servers with the cloud too. Marks’ decision ended up helping him to weather the Great Recession.
“When things turn bad, you don’t have to panic, because you can take a cut in revenue,” says Marks. “Even in the brunt of the recession, we never lost money. Cutting down overhead really gives you that peace of mind. If your overhead is low, you can make pricing decisions that you otherwise wouldn’t be able to make.”
Carefully tracking and managing income and expenses is vital for companies that are at any stage of growth; but is especially necessary for startups that may be operating with extremely limited resources. If you’re looking to take charge of your company’s budget, here are a few tips for helping to keep your expenses low.
1. Conduct Routine Overhead Expense Checks
Routine reviews are important, allowing you to check and adjust your budget and identify areas where you could cut back. This will allow you to keep an accurate budget, helping you to determine what is no longer necessary, what is costing too much, and what areas may need some work. Recurring expenses that you no longer use, for example, is one area where you could save. You may also want to look for places where you could save by going paperless or by taking advantage of software that can help to improve your efficiency.
2. Allocate Enough Funds to Important Areas
Conversely, be sure to check to make sure you are allotting enough funds to important and key areas. Drastic cutbacks to areas like customer satisfaction and order fulfillment, for example, could cause your company to suffer. For instance, you wouldn’t want to try to send out orders by slow boat, in order to save on shipping. The result will be unhappy customers, who may in turn take their business elsewhere. Instead, consider sending email invoices rather than paper ones, to save on stamps.
3. Remember That Time is Money
You may be tempted to do things yourself to save money, and while this can sometimes be a good way to save; other times it could end up costing you. Before you start adding to your to-do lists, you’ll want to make sure it’s the best financial move. First, consider how long it will take you to perform the task in question, then, times that figure by your hourly rate. Don’t forget to factor in tools and supplies, if applicable. If this total is more than it would cost someone to do it for you, you may want to continue outsourcing it.
4. Consider Your Space
For most small businesses, a decent percent of the income goes towards the rent or mortgage. While some companies need a brick-and-mortar location, others could function just as well as a web-based company. Many companies end up paying a significant amount of rent for a place they rarely occupy. Consider your industry and ask yourself if it makes sense for you to be paying rent. Do you need an office building? Would a smaller space be better? For some industries, allowing employees do their work remotely might be a good move. Take advantage of tools and tech that’s available today, and use them to help you save.
5. Go Paperless Whenever Possible
While it might not be possible to go completely paperless, looking to reduce paperwork is always a good idea. Going paperless in areas such as time tracking can help eliminate useless paper trails, and save time spent transferring data by hand. Going paperless by backing up your files to the cloud or onto a hard drive instead of printing things out and filing them, can also help to eliminate the need to spend on excess amounts of paper and ink. While it might not seem like much, the cost of paper and ink can add up considerably over the year.
6. Try to Eliminate “Miscellaneous” Spending
Finally, you most likely have a category in your budget known as miscellaneous. Each month, the expenses in that category probably grow. By eliminating this category, or at least, significantly reducing the funds that are allotted towards it, you will be able to track your expenses better, giving you a more accurate understanding of where your money is really going.
Keeping your costs down should be a year-round effort; not just something you do once a year when budgeting. By conducting careful audits every month or two, and working to keep costs low in areas that aren’t strictly necessary, and spending wisely on things that will help you to boost your profits, you can help to improve your bottom line.