When you are establishing a business, you are unlikely to have the luxury of significant funds. Very few businesses do, and the greatest way to increase your profits is to look for ways to cut costs.
You could have recently experienced a change in circumstances that has forced you to consider your businesses’ costs. Perhaps you’ve hired a new member of staff with a disability or you, yourself, have a new disability.
While these are not a barrier to success; you might need to make changes to adapt to new conditions, i.e. fewer hours, finding a different way to complete a task, or using specialist equipment/software, etc.
These adaptations may require you to look carefully at your budget, and it can be a challenge to know what spending you should reduce or cut.
Here are six steps to help you run your business on a shoestring.
Step One: Collate A List Of Your Expenditures
The first step is to create a list of your expenses, no matter how small or how unimportant you think they are, include them. Next to each expenditure, write down the exact price, the frequency of payment, what you receive for that price and any additional benefits the purchase provides.
For example, a coffee machine for waiting clients might not appear essential, but in the long-term, it supports client retention as they appreciate a hot drink while they wait.
You can take this a step further by grouping expenses by their function. i.e. marketing, supplies, staff, etc.
Step Two: Set A New Expenditure Goal
An expenditure goal is something you can aspire to and allows you to determine what expenses you can keep and what you can’t.
Don’t be too aggressive with cutting your costs early on. You can always re-run the cost cutting exercise to get better results, but when you cut services and then add them back on later, you can potentially increase costs in the long-term.
Step Three: Check For Skill Overlaps
Look down your list of costs and consider which services you could complete yourself with either your current skill set or additional training. For instance, could a digital marketing consultant train you to take over your website maintenance and social media marketing?
If your company has been operating for several years, then your skill set might have increased, or you could have hired staff who have an overlap in skill sets with an outsourced service. Be sure to be realistic as well, don’t state you can achieve something if you aren’t going to do a good job.
Step Four: Prioritise Your Expenditure
Look down your costs and sort them into three groups: ‘must have’, ‘would like to have’ and ‘not necessary’. The latter of these are going to be services that might not be applicable anymore or those you can take over yourself.
For the ‘must have’ group, calculate an estimated total cost and then compare this to your total expenditure budget. If there’s any surplus cash in the budget, you can look at which services you could potentially afford from your ‘would-like’ list. Remember to retain the most valuable services first, even if they are the most expensive.
Step Five: Negotiate Your Contracts
The next stage is about negotiating your current service agreements. You might find that you can get better credit deals, service agreements or rates if you’ve been in business for a while and have paid on time. Suppliers will often offer preferential rates to retain your custom if you are considering going elsewhere.
Don’t be afraid to ask for a discount from current suppliers. They may refuse but you shouldn’t penalise them for this and can just thank them for considering it. You can then decide whether you wish to continue with their services or look for another supplier.
Don’t add additional services at this stage; you’ll need the lower prices to create a healthy buffer between your costs and your expenditure goal.
Step Six: Check Your Stats
The final step is to review your expected expenditure against your actual expenditure. Stopping services might seem like a good idea at first, but sometimes it doesn’t work out. Some services are more important than you realise and their absence could slow staff down, increase costs in other areas or increase errors.
If this happens, you should use the additional funds from the budget to engage a service which can fix the error. You might already have been using a relevant service, or need to find a new one.
Whatever the scenario, you know your budget and exactly what you need to keep your business functioning.
You Can Achieve Greatness On A Shoestring Budget
A business without funds can’t operate and succeed. However, those who recognise they need to change, learn what cuts they need to make, and then act, can achieve success.
If you need motivation, consider Stephen Hawking. He didn’t let the onset of his amyotrophic lateral sclerosis hold him back in his career, and ultimately, in achieving outstanding success as a world-renowned scientist.
Are you looking to cut costs in your business? What are your tips for reducing expenditure?
Let us know in the comments.
Written by Susan Pattrick