Running a business can be a costly endeavour, and it's important to keep expenses in check in order to maintain profitability. One way to do this is by identifying and cutting non-essential expenses, but that’s not as easy as it sounds. Here are a few tips from our accounting experts to help you cut business costs without negative consequences.
Step 1: Finding Non-essential Expenses
Line-by-line budget
To find the non-essential expenses in your business, prepare a line-by-line budget for the coming financial year. This will force you to review historical expenditure where you may discover things like old subscriptions or duplicate costs.
Review profit and loss statements
Review your P&L statement on a monthly basis. It should be compared against the prior year’s statement, as well as your budget. Things to look for here include:
- Increases in costs
- Low margins
- Losing money
Review your margins and expenditure
Reviewing your margins and expenditure against industry benchmarks will raise any red flags and alert you to areas you’re overspending in. As an example, you may notice that your direct material cost is significantly higher than that of the industry average.
Work with skilled bookkeepers
Ensuring you have great bookkeepers working for you will ensure accurate financial reporting so you can spot the non-essential costs easily.
Step 2: Start Cutting Costs
Once you’ve found the leaks in your boat, here’s how to fix it and start saving money to boost your bottom line.
Remove the cost completely
Depending on the cost you’re cutting, you can simply remove it if it’s not required to run the business.
Renegotiate with current suppliers
If they’re not flexible on price, try negotiating more favourable payment terms or seek alternative solutions.
Source an alternate supplier
New suppliers might give a better price to attract new business. They may also offer alternatives to your previous supplier that can reduce your costs without impacting your product or service.
Look at outsourced solutions
Another way to cut costs is by outsourcing. For example, instead of hiring an in-house accountant, consider using a subscription service to outsource your finance function.
Use technology and software to monitor expenses
Consider whether there are automation solutions to streamline processes and cut out a sequence of costs. Reporting and accounting software can also make it easy to track where money is going and set budgets.
Invest in Assets
Consider an asset purchase rather than hiring equipment. You may get more bang for your buck and be able to tap into grants or tax incentives .
Start Looking For Non-essential Expenses
The fundamental thing to remember about cutting non-essential business costs is that you won’t know where they are unless you start looking. By regularly reviewing your expenses, identifying non-essential expenses, and taking steps to reduce or eliminate them, you can help ensure the long-term financial health of your business. If you need help with cost-cutting, or anything else on your business adventures, get in touch with our skilled accountants by submitting the form below.
