There is always a good reason to review your financials to see where you can cut expenses. Like people, most businesses experience different seasons throughout their lifecycle. There may be months or years where it is appropriate—even necessary—to spend a bit more liberally, investing in the company by way of renovations or other improvements.
For newly-established businesses especially, expenses may be high; Shopify reveals that entrepreneurs with zero employees spend about $18,000 in their first year. Throw a few employees into the mix, and that number jumps to $60,000!
No matter where a business is in its lifecycle, cutting costs where possible is an excellent way to retain more profit and increase financial security. Here are a few easy ways to slash business expenses and enjoy more revenue.
Analyze Software Subscriptions & Recurring Costs
In a perfect world, businesses would subscribe (and keep subscriptions) to only the necessary software; in reality, there may be several unnecessary subscriptions that may have renewed on an annual or even monthly basis that have simply been forgotten.
By routinely reviewing subscriptions, entrepreneurs can ensure they are only paying for what is helpful or necessary for their business and cut expenses that not helpful. One quick way to view most, if not all, subscriptions is to pull up credit card or bank statements periodically. This will not only reveal recurring subscriptions, but where a business is hemorrhaging much of its money. Adjustments may then be made accordingly.
Review Overhead
Another effective strategy for cutting business spending is to spend some time analyzing the return generated by fixed overhead. Money that goes toward salaries, payroll, office rental, and utilities and equipment are all examples of overhead, and should be monitored to better understand which costs are necessary for successfully running a company and what revenue is generated by those costs. By making it a point to study overhead costs, business owners can make more deliberate decisions regarding where the business’s money is allocated.
For example, if a contractor was kept on the team even after completing the project he or she was hired for, it may be time to reevaluate the value that contractor brings to the company. The difference could be thousands of dollars per year.
Evaluate Sales and Marketing Expenses
While any department could technically rack up spending, sales and marketing are areas where businesses may particularly be overspending. .
Of course, advertising campaigns are important for promoting brand awareness and engaging potential customers; however, Forbes recommends that only 5-10% of revenue be funneled back into marketing efforts (and up to 20% for rapid growth). It’s easy to substantiate marketing spend as “investing in growth” but it’s important to fully understand your Customer Acquisition Cost to determine if you are getting a return on your spend
With this in mind, business owners should take a close look at how much is being spent on sales and marketing efforts, such as travel and dining expenses and promotional materials. Developing a strategy that targets the business’s goals while still remaining within budget will be beneficial for “trimming the fat” in this area.
Hire an Expert
Finally, having a professional accountant on standby is one easy way to simplify and streamline analysis and see where you can cut expenses. An expert will assist in optimizing cash flow, and help business owners develop a spending strategy that works well for their company.
Reach out to our team to learn more about getting professional accounting recommendations for your business.
