Do This to Stay Afloat When Your Expenses Mount Too High
Every business aims for the universal goal: profitability. And in simplest terms, there are only two ways to do this. Increase Revenue or Reduce Expenses. It is most ideal to do both effectively. A successful business is able to strike a balance between these two. But it does not happen in a snap, no. Running a business requires spending money just as much as it requires earning it.
If you find your “overhead” are mounting higher than your returns, the first thing the business needs to do is to re-evaluate.
Review your costs. Get your list of all overhead costs updated. Take note that overhead costs are both variable and fixed and those that are paid on a regular basis (i.e., monthly, quarterly, annually, etc.). Go over the list and tag the items that are: 1) no longer necessary, 2) too high in cost, and 3) open to efficiencies.
Get your employees involved in brainstorming about areas where money can be saved. Look into typical capital expenses like rent, phone and travel, electricity, bank fees, office supplies, etc. You might even offer incentives for the most potent ideas. Collaboration often yields more ideas than individual assessment.
Re-evaluate all your third party contracts. Rented equipment and service fee retainers are good places to start. You might be able to cut costs by eliminating contracts that may not be as beneficial now than when you started the business.
Revisit storage spaces. It could happen that you are keeping non-working technology like old computers, printers, copy machines, phones, and the like or even forgotten furniture. You can either sell the viable items or you can donate to charity or schools for a possible year-end tax write-off.
Assess your staff. Evaluate for underperformance, redundancies, or optimization. Underachieving team members will only drain a business of its resources and morale. Just take care to work closely with Human Resources as you take steps into reducing or restructuring your workforce.
Leverage on your current client base to save on marketing initiatives. Referrals made by current clients to other potential customers is one of the keys to a successful and lasting business. Even in this digital age, word-of-mouth remains essential in promoting your business. Consider rechanneling a part of your advertisement budget to something like an incentive to clients who refer others to your business. Incentives can also take the form of discounts on future goods or services. Premium or value-adding items as tokens can likewise be a reward for clients who bring other customers to you.
Another seemingly simple action that goes a long way is going paperless. It might not be possible to totally eliminate paper use in your office, but there are aspects or areas in which you can substantially diminish the use of paper. And with this, you will also save up on other incidentals like printer ink/toner, maintenance, and even storage space. Finally, back up all documentation in hard disk drives or the cloud.
Control Purchasing by concentrating this task to one person or small department. Part of the function of acquiring or ordering is finding the best price. The ability to negotiate special pricing is an important competency to look for in a purchasing officer.
Re-examine how much office space it is that you really need. Open your mind to the possibility of moving to a more efficient office space, or perhaps even to following the telecommuting model, if possible. If you are tied to the current office by a long-term lease (or if you own the building), consider the possibilities of sub-leasing. This will surely subsidize your own costs.
These are only some of the first level evaluations you can do when you begin to notice expenses eating more and more into your profits column. It is recommended that you begin with some, if not all, of these. Just remember, there is no “silver bullet” to moving back in black when you start seeing red.