7 WAYS TO CUT EXPENSES
A friend of mine recently asked if we could look over a P&L of a business that he was interested in. After a quick review, we discussed the issues the business surrounding the business – one of them was the expenses. The owner of this business had made some bad decisions which mean that the expenses were higher than they should be. This led to a discussion on expenses – those you need and those – well those that need to be reduced or gotten rid of.
So, I thought it might be a good time to discuss business expenses. There is never a bad time to check your spending and reassess your expenses as a business owner or as a household. (It’s ironic to me that the US government has not actually had a budget in over 40 years. Yet countries such as the UK have an annual tradition of presenting the year’s new budget – they even have a historic red brief case that is photographed with the Chancellor of the Exchequer holding it up as he/she prepares to take it to parliament to be discussed – this is big subject and one I will look to write about soon).
Any business budget can benefit from a little belt-tightening, the need to keep expenses to a minimum is a constant battle.
Here are seven simple and easy ways that readily cut expenses, and free up those funds for other, more important uses.
- Pay invoices early
It’s a common practice for suppliers to offer discounts for paying invoices as soon as you receive them. Not only will paying early save you money right away, but it also cements a strong relationship between you and your suppliers, which can lead to more room for negotiating lower prices in the future, as well.
- Reduce your inventory levels
Buying in bulk may reduce the price of each item, but a large order still costs significantly more than a smaller one. Consider whether you really need to tie up that much of your working capital — for example, do you really need a year’s worth of paper at one time?
- Hire an intern or a virtual assistant
Opportunity cost is just as much of a factor in saving money as cutting actual expenses is. If you are using your valuable time to perform menial tasks, instead of revenue-producing activities, you are losing money. Hiring an intern or an assistant (virtual or real-life) allows you to delegate the less specialized tasks and focus on bringing in more income.
- Barter with other businesses
Rather than spending money on necessary products and services, negotiate a deal with other business owners in which you provide them with an equivalent amount of goods or services from your own independent contractor business. Just be sure to set out the terms of the deal in a contract, to make it a legal transaction.
- Use open source software
The high cost of software can put a serious dent in a small business’s budget, especially if several different specialized programs are necessary. Open source software provides free alternatives to many popular programs, from Word to Photoshop, and files can usually be converted easily into formats compatible with clients’ needs.
- Avoid perpetual payments
Some of these are inescapable, such as utility payments. But whenever it’s possible to buy equipment outright rather than lease it, do so. Purchasing used equipment can result in even greater savings. Not only will you have one less payment to worry about each month, but you’ll be able to take advantage of the tax benefits that depreciation brings, as well.
- Negotiate lower credit card APRs
Many small companies use credit cards to pay for business expenses. What is the annual percentage rate on yours? Often, credit card companies are willing to work with cardholders to lower rates, which can save your business a great deal of money, both in the short and long-term.
By exploring these seven means of cutting expenses, you stand to save your business a significant amount of money.