One thing small and medium sized business owners can learn from Fortune 500 companies is the practice of regularly looking to cut costs. This is something you should be doing at least twice a year, if not quarterly. Look over all your expenses and identify ways to reduce 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?
==> Start With Routine Purchases
What items do you purchase on a daily, weekly or monthly basis?
These could 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? Does it really pay off?
==> Check Your Competitors’ Pricing
Get a sense for what your competitors are paying their suppliers. Do you think you’re paying more? If so, it might be time to renegotiate your supplier agreements or to find new suppliers.
==> Office Space
Are you using all the office space you’re renting? If not, consider sub-letting out part of the space. You may also want to consider relocating or renegotiating your lease.
==> Price of Capital
Are you using credit? If so, are you getting the lowest rate possible?
If the price of capital is regularly eating into your profits, you may want to look into selling some equity to pay off some debt.
==> 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 an emergency. Any accounts that are overdue by 60 days or longer should be followed up on relentlessly.
Money not received today costs money. It reduces your cash on hand and puts your business at risk.
==> Taxes and Insurance
Are you paying too much on your insurance? Make sure your unemployment insurance, workers compensation insurance and health insurance classifications are right. If you’re 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 great accountant more than pays for him or herself.
If your business is really short on cash, you may have 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 alternative 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.