5 Simple Steps to Reducing Your Business Expenses

Reducing your expenses is the fastest way to increase your business profitability. And a lot easier than trying to increase your sales suddenly. 

And here’s the thing. If you don’t keep an eye on your expenses, you’ll find that as your sales increase, so do your expenses. So you’re working harder and harder without making any more money. 

Vicious Circle of Business Expenses

When we talk about cutting expenses, what we hear often goes something like this:

“I can’t cut my expenses – I need my phone, my subscriptions, I’ve got to pay electricity bills. Then I’ve got the car lease and the …” and on it goes.

You might think that you’ve only added expenses for things that you need, as you need them and that there’s nothing you can do without. But it all creeps up and before you know it, you’re working what seems like 24/7 but there’s still no money at the end of the month.

The Truth About Business Expenses

In July 2019 savings.com.au reported that 62% of Australians were wasting money on subscriptions that they weren’t using, at a cost of nearly $4bn per year.

Businesses are no different. When you’ve got subscriptions that automatically renew monthly or even annually, it’s all too easy to forget about them. Especially if you’re not using them!

Even if you are using the service, should it be costing you as much as it does? You may have signed up for a subscription that gives you 200 transactions a month, but if you’re only using 50 you may be able to reduce the cost and still get what you need.

5 Steps to Reducing Business Expenses

So let’s have a look at our five simple steps to reduce your expenses and increase your profitability. It’s not as hard as you might think!

Step 1 - List out all your costs

The starting point is to get a list of all of your periodic expenses, including monthly, quarterly and annual expenses.

Ask your bookkeeper to include details of the cost, period it covers, renewal date, contract end date and the services covered.

Don’t have a bookkeeper? In a later article, we’ll explain to you why this is one of the essential services for you to outsource. For now, you’ll need to do this yourself. Do it in front of Netflix and it will be done in no time.

Step 2

Review everything that is not on a contract, or the contract is due to be renewed and check to see if those services are being duplicated by another supplier. For example, your email system now incorporates a CRM and you’re paying for a different CRM.

Make sure to also check if your actual usage is lower than the service you are paying for. For example, your mobile phone contract may give you 50Gb per month in data, but you only use 20Gb.

Step 3

Cancel anything that you can where the services are being duplicated (or you realise you don’t use or really need them!) and reduce plans to the levels that you actually use, not what you thought you would use.

Try to be ruthless with this step. Generally, the worst that will happen is after a month you will realise you actually do need the service and you just sign back up for it!

Step 4

Once you’ve cleared out the subscriptions, it’s time to tackle contracts. Obviously, these can’t be tackled all at once and need to be reviewed throughout the year. The best way to make sure they don’t fall through the cracks when you get busy is to diarise to review contracts before they renew!

Step 5

Now that you’ve made the change, you can’t just rest on your laurels though. It’s all too easy for those unnecessary expenses to creep back in throughout the year. The final thing you need to do to make sure you’re always on top of your costs is to diarise a meeting with yourself in one year to do this exercise again!

Regular Reviews Keep Expenses Front of Mind

Keeping control of your business is hard work. It’s easy to waste money, but if you implement this easy 5 step process, that’s not going to be the case in your business! It will have everything that it needs to function and you’ll have more cash to reward yourself or invest in your next growth opportunity.