One business can have a hundred objectives, but at the root of each mission is the company’s bottom line. The more profit the company turns, the more it can achieve and the more it can give back to its leader, employees, clients, and community.
While figuring out ways to make money is on the forefront of most business owners’ minds, many are forgetting the importance of saving. Here are 5 cost saving ideas for businesses:
1. Understand the “why” of each expense.
According to TAB Fraser Valley President Rod Woodcock, cutting costs begins exactly where all other business decisions should – the company’s strategic plan. Before making a purchasing decision, Woodcock suggests business owners “challenge every line in their operating statement to TRULY understand what the expense is bringing the company.”
2. Charge for expenses.
Businesses owners should not be afraid to charge clients for the tools required to provide the best possible product/service. For example, if you bring in a credit card system to streamline payment processes, charge for it. “If credit card fees are 1.5%, raise prices 1.5%,” Woodcock says.
3. Maximize current employees before hiring new ones.
When demand spikes, entrepreneurs are often too quick to bring on new hires. Not only does hiring cost time and money, but you risk bringing on unnecessary hires who will serve as little more than an added expense once demand plateaus. Woodcock recommends maximizing the output of existing employees before hiring to accommodate growth in demand. “Drive to 110% for an extended period before expanding fixed costs,” he says.
His top tip for achieving this is investing in the education and/or technology to help employees accomplish more with less — don’t just push them, give them the tools to be more efficient.
4. Look to the numbers.
As with all things business, the proof is in the numbers. The Alternative Board San Antonio President John Dini recommends using “common size” income statements as fast and easy analytical tools. “It can be difficult to identify appropriate expenses when your business is growing,” says Dini. “Print a report showing the last few years side by side, with each expense item measured as a percentage of sales (QuickBooks can do this). Looking at how the expense increases or decreases in relation to your revenues can be illuminating.”
For example, Dini adds, “If sales increased over the last two years from $1,976,433 to $2,152,555, and your freight costs increased from $51,387 to $66,729, is that better or worse? Seeing that shipping, as a percentage of sales, went from 2.6% to 3.1% is a half-point off your margins — and actionable information.”
5. Use Your Accountant Wisely
Many business owners are unintentionally losing money, because they aren’t keeping accurate records of their spending. If finances aren’t your strong suit, it might be time to call in a pro. David Wechsler, Vice President of The Alternative Board Denver West suggests that business owners “hire a bookkeeper or accountant that has some familiarity with your industry.” Wechsler notes that entrepreneurs need to take advantage of their accountant’s expertise in order to save the most. “Use your financial professional wisely. You are not paying someone north of $75 per hour to do data entry; you are paying them for guidance, compliance, and peace of mind that your financial house is in order.”
Take a moment to reflect on your personal vision of success. Whether it focuses on profits, work life balance, or bringing about change, your company’s bottom line plays an influential role in the pursuit of your long term goals. It’s very common for hidden business costs to prevent business owners from reaching the profits they need to make their vision a reality. These cost saving ideas for businesses can make or break your strategic plan.
The Alternative Board works with small business owners to help them define their personal vision of success and develop a strategy – financial and otherwise – for achieving it. Contact a local board to see how a community of business owners can help you refocus your finances and help you get out of your business exactly what you want from it.