Let’s do some simple math here. Let’s assume that your businesses taxes are in the 20% range. For every dollar you earn, you hand over $.20 to various federal, state, and municipal governments. So for each dollar of income your real income is going to be $.80. Increasing income to increase profitability will only ever potentially increase your profitability by $.80 on the dollar.
However, by reducing expenses, you are eliminating after-tax expenditures meaning that you impact your bottom line dollar for dollar. Don’t get me wrong, raising your income is a great way to build profitability into your business. However, reducing expenses has a greater per-dollar effect on your bottom line.
So how do you reduce expenses at your business? Let’s review some ideas that can help you do just that:
- Reconsider your hiring options. Many people think that they start a business and then the next step, once the business grows, is to hire staff. There is actually a more affordable intermediate step in between: outsourcing. Outsource a variety of your work to others before you consider hiring staff. This will keep your overhead low, your wage costs low, and help to eliminate headaches that come with staff.
- While receivables are typically considered nearly-liquid income (because, in theory, you can turn them into cash within a year), they require a lot of effort and expense on your part to manage. Take a critical look at your receivables list and choose to keep only those that will allow you to collect effortlessly. Sell all the others to a receivables-purchasing company. Although you won’t get dollar-for- dollar-owed on them, you will get back a lot of time that you would have spent tracking down potential bad debt.
- With gas prices nearing an all-time high, plan your days carefully. Group travel tasks together so that you’re not wasting money on getting from Point A to Point B.
- Know the value of your time and consider ideas like a concierge service that will do the same task that you could do, but for much less. (For example, rather than ducking out of the office to drop off dry-cleaning, get a concierge service to do it).
- If you are getting your telecommunications (phone, long distance, cell phone, and Internet) from different companies, see if consolidating them will result in a monthly savings from “bundling” discounts.
- If you have a corporate credit card and you carry a balance, switch to a balance transfer card, whose interest is typically lower than regular cards. However, be aware that new purchases on the card are usually charged a higher interest rate so keep your current card for purchases and your balance transfer card just for balances.
- If you’re tempted to rush out and buy software for some new function you want to be able to accomplish, consider first checking out a site like tucows.com to see if you can’t find a version for free (or for a lower cost).
- Approach non-competing companies who operate at a similar scale as you and see if there is a way to share resources by forming an informal cooperative.
Reducing expenses does not necessarily mean getting the cheapest option. In some cases, the cheapest option means you’ll have to do more work yourself so be sure to factor in all costs before trying to balance the benefit between lower your costs and getting the best value.