BUSINESS EXPENSES ARE a little like bamboo: They tend to grow naturally without much input or encouragement and in a manner that can quickly get out of control!
Much like bamboo, regular maintenance is necessary to ensure they don’t completely overtake your garden of profitability, rearing their ugly head in places where they simply aren’t required. This time of year, following your financial year end, is one of the best times to review many of your financial outlays. I recommend a copy of your financial statements, your ledger, a highlighter, and a decent period of uninterrupted time.
First, take an overview of your expenses per your financial statements compared to last year. Where have costs increased markedly? These require further investigation to ensure they don’t become permanent increases that aren’t necessary.
Your ledger is your best way to review expenses line by line. According to the 80/20 rule, most of your costs will be tied up in product purchase, staff wages, rent and marketing, and these areas will deserve special attention — but other areas can soon blow out also and are worth the time and effort. They include:
Subscriptions. What have you subscribed to that you are no longer using? I had a client who was paying separately for Microsoft 365, Dropbox, and Google — all services that were capable of doing the same job. A tidy up and elimination saw him reducing his expenses in this area by over $400.
Credit cards. Do you have multiple cards with multiple fees, many of which you don’t use? Some have generous travel insurance options worth the annual fee. However, COVID has rendered many of these policies useless and not worth paying the premium. Again, a review of your cards may reveal several hundred dollars in fee savings that can stay in your back pocket.
Payment terms. With product being one of your biggest outlays, it pays to look at the benefits of prompt payment. Some attractive terms for early payment can be well worth the outlay, providing thousands of dollars a year in savings.
Advertising. Local media, such as newspaper, radio and television are now being outsold by online platforms such as Google Ads and Facebook. If you’re currently locked into a media contract, it may be time to renegotiate whether you are getting good value for your money. Online marketing can often reach these people for a fraction of the cost, and most local media are willing to offer much better rates to stay competitive with them. This is to your advantage.