Without sales and incoming revenue, a business can’t grow. But it’s equally true that outgoing expenses, if left unchecked, will keep a business from thriving as well.
Cash flow and expenditures aren’t the most exciting aspects of leading a business, but they’re the most fundamentally important considerations of all. Businesses spend beyond their means all the time, yet only those who manage to contain those losses and debts can make this perilous strategy work.
For the rest of us, the key to business viability is closely monitoring the necessary costs of running a business and finding every means possible to reduce or eliminate expenses that hamper future growth.
Here are some basic ways to reduce expenses, so you can funnel your hard-earned profits into building the company and focusing on strategic growth:
Use analytics to measure the success of your initiatives. It’s one thing to launch a new digital marketing campaign or dramatically upgrade your business website. But the effort is largely worthless without a way to analyse its effectiveness. Various digital tools, such as Google Analytics and Facebook Analytics, enable you to “watch users’ activity and see whether they interact, they click through to the website, how long is spent on the page and whether they invest in the product/service that you’re offering.”
By compiling and assessing the data provided by these and similar tools, you can determine the return on investment for each initiative. If the ROI falls short of expectations, reassign your funds to another area with more promising potential.
Purchase equipment that suits your business. Not every piece of equipment purchased for your business must be brand-new and/or top of the line (i.e., the most expensive). Refurbished office and warehouse equipment may be suitable for your needs, as long you check out the supplier beforehand and ascertain the quality of their merchandise. Another option is buying equipment that serves multiple functions—for example, a copy machine that also scans documents and offers other key services.
Go green. If you haven’t already done so, the time has come to convert your business to a “paperless” environment. Not only is this ecologically responsible—a fact you can share with eco-minded customers—the use of digital technology to replace paper will help cut costs. Installation of energy-efficient utilities will certainly reduce expenses related to the building or warehouse in which your business is stored.
Look into acquiring (or leasing) new technology that optimises routine operations. There will be initial acquisition costs, but over time, you’ll likely see the kind of cost reductions you’re looking for.
Put money aside for preventive maintenance and repairs. Even the best technology (digital and otherwise) will run down after time, needing to be fixed, upgraded or replaced completely. Rather than wait for things to break down—which they seem to do at the times you require their services most!—spend money on preventive maintenance and minor repairs. Waiting until a major malfunction occurs will invariably cost more money than your business can afford.
Become more strategic with taxable deductions. If you (or your accountant/accounting team) aren’t making the most of business deductions, you might be needlessly sacrificing a great deal of money. Experts advise that you should “save approximately 20 to 25 percent of what your business makes for taxes,” but at the same time, “you should also use deductions to reduce what you owe as much as possible.”
Of course, you should never cut corners on taxes or do anything that might be considered fraudulent by the IRS. A knowledgeable accountant or accounting firm can guide you in the best ways to deduct business expenses in a thoroughly legal manner.
Extravagant spending and not paying attention to where expenditures are made is too risky a practice to sustain for long. Reducing unnecessary expenses, on the other hand, increases the chances you’ll have cash on hand for what’s genuinely important further down the road.
If you would like to find out how The Alternative Board’s peer coaching and advisory boards could assist you in reducing your business expenses, contact your local advisor today.