For a small business owner to more profit you need to either increase revenue or reduce expenses. While the timing of increasing sales to customers is not always within the direct control of the owner, cutting expenses is. The difficult part is knowing which expenses to reduce that will not affect the ability of the company to grow its revenue.
Here are 11 ways to reduce general expenses that can have little effect on sales, but can boost a business’ bottom line.
1. Reduce Rent Costs or Go Virtual.
Ask for a reduction in rent, especially if company sales are not going as planned. This may include extending the lease in exchange for a lower monthly rate. Alternately, unless the business is a retail location, determine whether the company really needs office space or if everyone can work remotely. Remember, with no office, there will also be no utility bills.When you think about it, does your entire staff really need to be located in-house? By letting your team work virtually, you could save more than $10,000 a year on real estate costs per person. If you decide to release your staff to work from home, realise you will have some initial costs up front, such as equipping them each with a laptop as well as expenses for setting up software for conferencing, file sharing, and internet, but you should still come out ahead in the end.
2. Outsource for the Services You Need.
Full-time staffers are one of a business’ largest expenses, but they’re not always necessary. Before you take on the expense of hiring a new full-time employee plus benefits, consider what your needs really are. If it turns out you just need another set of hands to work the cash register while you pay bills in the back, a part-time employee can fit the bill. Depending on your business, interns and independent contractors can also give you the support you need without the commitment and expense of a full-timer.
3. Identify Marketing Spend & ROI Efficiencies.
Businesses thrive or die based on the effectiveness of their marketing. Product pricing, loyalty programs and sales promotions all play a vital role in helping businesses keep customers coming through the door. Take a look at all your marketing campaigns with fresh eyes. Identify which channel has the best return on investment (ROI) and look for ways to improve the efficiency in campaigns. Generally if you look, you’ll find a good 10-20%.
If you use a Digital Marketing Agency, have a chat with the and ask them to review their performance. Maybe you are paying for services or reports that you don’t really need and that investment could be used to refresh advertising creative to re-engage customers and give your brand or product a refreshed look.
4. Negotiate Better Merchant Processing Fee Rates.
There are typically a lot of extras in these banking costs. Learn what they are. If the fees are too high, go out and shop for a lower rate since many alternatives are now available. If the bulk of your payments are credit card transactions, you’re probably paying hundreds of dollars in transaction fees to your merchant card processor for the privilege. But did you know these fees are sometimes negotiable? If your number of transactions has increased, you may be able to leverage that fact to get a lower percentage per transaction fee. Also, pay attention to your itemised monthly statement to ensure you’re not being charged for, say, a credit card terminal you’re not using. And if you can process your transactions online or using a mobile device, it may be cheaper than using a terminal.
Many merchants think of card payment processing—and its associated costs and risks—as a necessary evil of doing business. Customers expect the option of paying with credit and debit cards, but this convenience requires a great deal of risk and expense for business owners.
From interchange fees to chargebacks to cross-border expenses, merchants pay for every transaction they process. Small business owners also have to worry about fraud. Small and medium-sized businesses are the biggest targets for cyber attackers, and the consequences are serious.
A major expense for many businesses is the cost of processing transactions and keeping those transactions secure. Good security protections are an absolute necessity, and they are always changing. A payment processor will save you time and money by managing all these challenges for you.
Small business owners also pay fees for their POS systems, but are you paying for old technology? Modern POS are web-based programs and easy to install and run on machines as small as an iPad. Since the program is hosted on the cloud, you don’t typically have to worry about updating your system. When the software company releases an update, that update automatically downloads onto your POS system.
A modern POS can also help your business run more efficiently. Touchscreen monitors, especially those on mobile devices, allow people to check out faster. This can allow customers to avoid the checkout line entirely and instead pay right in the store aisles. With today’s POS systems, employees don’t have to manually enter nearly as much information as they once did. A few taps on the screen processes the transaction, eliminating the possibility of costly data-entry errors.
Lastly, a POS system can save money by delivering real-time reports about the state of your business. Everything from sales sheets to inventory to employee hours can be managed quickly and efficiently from your POS dashboard.
5. Buy Inventory in Larger Orders to Save.
The key is to start asking all suppliers for a lower purchase price. This can be especially effective if the small business has been a loyal customer for a long time. It should include any part of the company’s cost of goods sold. A reduction here can increase gross profit and have a substantial effect on net profit.Rather than ordering the products you sell each month, consider ordering more, once a quarter. Then ask your supplier to negotiate a lower bulk rate for the bigger order. If they’re not willing to do that, shop around for better pricing elsewhere.
6. Employees or Freelancers?
Determine which ones actually contribute to growing revenue and which ones are administrative overhead and can be let go. Employees can also be replaced with freelancers that only bill when there is work to be done. Matching revenue to variable people expenses in this way will cut overall costs and immediately boost profitability.
7. Review Travel Expenses.
Ask if the meeting really needs to be done face to face or if a video call can be a substitute. If travel is required, book air travel far in advance. Use services like Kayak to compare fares. Use mobile apps like Hotel Tonight to get drastically discounted rates from brand hotel chains.
8. Review Bank Expenses.
Since the recession of 2008, a lot of banks have added additional fees in an effort to raise revenue. Review the company’s monthly bank statement to see what is being charged. For any bank line of credit, ask for a fee reduction if timely payments have been made. The alternative is always to change to a bank that has lower fees.
Again, if you have dept or a Credit Card, it never hurts to call your provider and ask for a better rate, especially if your payments have always been made on time. The alternative is to utilise a balance transfer offer (usually with a small fee and no interest for one year) to change credit card companies. If your small business operates in other countries, make sure any credit card that is used does not charge foreign currency transaction fees.
9. Reduce Utility Bills.
Electricity costs are the big culprit here and according to Kelly Gallagher, President of Everlights, “The quickest way is to change your existing lighting to more energy-efficient lighting”. For most businesses, the cost of turning on the lights is the bulk of their electricity costs. All modern light fixtures such as desk lights and fluorescent—can benefit from more energy-efficient bulbs.
For example, by using an 11 watt LED bulb in place of a conventional 60-watt incandescent bulb, you will instantly save 49 watts per socket. These simple changes often pay for themselves within a year. Unplug devices nightly, since most draw a small amount of energy so they can be turned on quickly. There are also power strips that can block this energy from being used.
10. Check Insurance Coverage.
The purpose of insurance is to protect what an owner can’t afford to lose. If the business is small, does the owner need to protect against a loss? This may not make sense if there is financially very little to lose inside the company. Alternately, raise insurance deductibles. Finally, don’t have employees pay for airfare or rental car insurance, since most charge cards cover this. It is, however, your responsibility to see which types of insurance are afforded by your chosen card.
The key for reducing expenses is not to do it in a haphazard manner. Each cut needs to be planned out. If there is a doubt about whether to eliminate an expense, go ahead and do it to see what the results are one month later. In many cases, owners will be surprised how much money they have saved with no loss of revenue to the company.
11. Consider Second Hand Equipment and Furniture.
Before you pull out your credit card for that major equipment purchase, browse your local listings to see if anyone’s selling what you need. Often companies will go out of business and liquidate their assets through online classifieds. You can score great office equipment and furniture in fantastic condition at a fraction of the price it would be brand new. Also, keep an eye out for auctions and estate sales in your town.
Fixed vs Variable Expenses
Fixed Expenses are those which remain regardless of the amount of sale. Examples include rent, insurance, leasing, salaries and depreciation.
Variable Expenses are those which respond in relation to business activity, or as the business grows. Examples include raw materials, inventory and shipping costs.
The costs of running a business add up quickly. ask any small business owner abut their fixed or variable expenses and you’ll likely get a long list of items and services, all of them indispensable, but all of them taking away from the bottom line. While these expenses may seem intimidating to tackle, small businesses that find ways to track expenses and mange their costs can establish a strong position in the marketplace.