If you run a business, then you should know the importance of keeping your overhead to an absolute minimum. How successful you are is far from just being about how much income you bring in. It’s also about the amount going out as well.
Your profit margin is the difference between the amount you charge for each item or service and the amount it costs you to provide them while running your business at the same time. It’s simple math.
Getting more people to buy your product or use your service is very difficult though, and charging more for it will probably only reduce the number of sales you make. The easiest way to make your business more profitable then, is simply to spend less on running it.
While most business owners understand this basic formula, what they don’t always realize is that the cost of their light bulbs and other ‘small decisions’ like this, will ultimately play a role in determining profitability too.
So here we will look at some of the best ways you can cut your costs and increase your margins. Every little bit helps; and if you multiply each of these savings over the course of a few days or several sales you can make a lot more money.
Here are 10 smart ways to reduce your business expenses:
1. Your Office
Believe it or not, the office is often something you can relatively safely get rid of. Many companies are famous for starting literally in their parent’s basements, while others make do with spaces like libraries and conference rooms.
In an age of cloud computing and video conferencing, you don't even necessarily need to be in the same room as your colleagues in order to get work done.
More and more companies these days work entirely remotely using tools like Trello, Google Docs, and Sack. Not only does this save costs on rent, but it also helps those companies to be more agile – able to attend events and meetings around the world, and able to respond to clients at any time of day.
And many of your employees would likely be more than happy to begin working from home!
No one is suggesting you stop paying your staff, but if you're smart there are ways you can get work for less. That might mean outsourcing certain jobs to other countries or to virtual assistants for instance.
Alternatively, it could mean automating aspects of your business or getting students/interns to come and work for you.
Hiring freelancers is another strategy more and more businesses are employing today, especially given the growth of the so-called ‘gig economy’.
Why choose from limited local talent pools? Why spend huge amounts of money on the administration alone that it costs to set them up? Instead, you could simply find a contractor and have them do the work as and when you need it, without having to pay for health benefits, paid vacation or other expenses that come with full-time employees.
Paper costs a surprising amount over time, but also requires storage space and delivery. Going completely paperless then is a good idea and can save you a lot of money while also helping to make life easier in terms of organization. As an added bonus, it will help make your business greener too!
Whether it’s ditching paper invoices for a tool like invoicely, emailing receipts or other paper-saving tactics, it’s never been easier to make your business paper free.
Saving money on your lighting is a big way to reduce business expenses - especially with energy costs going up all the time. There are various ways you can do this, from using energy saving bulbs, to using timers to make sure that lights don't accidentally get left on.
While you won’t need to even consider this if you have followed the first tip (ditching the office), you can nevertheless save a fair amount as a freelancer or independent contractor working from home as well.
And once again, this has the considerable added benefit of being extremely good for the environment too.
5. Air Conditioning/Heating
Maintaining your work environment is important if you want to get the most productivity from your staff and avoid sick leave, and it's also just the right thing to do.
To make sure you aren't wasting money, ensure that your systems are as efficient as possible and maintained regularly. Likewise, avoid wasting heat or air conditioning by having the windows open when you're using them.
6. Looking After Staff
To extend that last point, looking after staff – and yourself – is an important way to potentially save a huge amount of money over time. If you have a large team and they’re off sick all the time, you’ll be paying large amounts of sick-pay.
Likewise, if you don’t look after yourself, you’ll be forced to take days off which means you won’t be earning money from clients.
The mistake many businesses make is to try and get more work done by pushing their team harder and harder. The problem is that this can eventually backfire – causing the team to crumble under the pressure and ultimately meaning far less work gets done.
Look after yourself and your team by ensuring the working environment is favorable, and helping them to perform satisfying and rewarding work, free from stress and pressure.
7. Change Suppliers
If you are selling physical products, then you should periodically shop around in order to ensure you are getting the best prices on materials and resources. If you are a reseller, then could you not find those same products for less and that way cut your overheads?
Likewise, could you get your paper for less? Or your fulfillment services? How about your energy bills?
And if not, perhaps you could achieve the same thing by negotiating with your current suppliers. If you don’t ask, you don’t get – and most suppliers would rather keep your business.
8. Process Fixes
A process fix is a project management term that means looking at the way that a certain job/workflow is carried out, and then asking if it could be done better. An example might be considering the order in which tasks are completed.
Could something more useful be done while the computer is booting up? Should you be turning off the computers at all?
Sometimes, a simple change to a process that saves just minutes, can end up adding up to countless hours saved over time.
Depending on your business you will spend a lot of money on various kinds of equipment. All these purchases should represent investments in the long run as they should amplify the amount of work your team is capable of doing (this is what we call a ‘force multiplier’ in business). Still, though, you want to avoid wasting unnecessary resources on these tools.
Make sure that you maintain your equipment to avoid having to replace it, train your staff to use it properly and consider renting if you don't need particular tools regularly. Likewise, ensure you are buying the best tools in the first place: will this item truly improve the quality and quantity of your company’s output? Is there a device or tool better suited to your needs?
If you pay your staff for their fuel or have to make lots of trips yourself, then fuel costs can begin to climb. There are many ways to keep these down though. One is of course to use more efficient vehicles, and another is to limit 'non-essential' trips. You can also encourage your staff to travel together where possible and car share, or send them on 'eco driving' courses which can teach them to drive more fuel efficiently.
Travel costs are even more of an issue for businesses that conduct a lot of meetings abroad but you can combat this easily by using video conferencing tools. This way you can carry out meetings as though you were in the same room with people across the globe and save huge amounts as a result.
Things You Can't Afford to Cut Back
While you can cut back on a number of expenses, there are also a number you can't cut back on without damaging the quality of your business. For instance, if you run a commercial business then you can't cut back on things like disabled access and you must never cut back on health and safety – this can cost you much more in the long run.
Likewise, you shouldn't cut back on things like technology – these aforementioned 'force multipliers' can help you to do more work more quickly. If you cut back, you'll end up creating less output and costing yourself money in the end as a result (though you can rent your hardware or buy refurbished secondhand items).
Reducing your advertising spend likewise has obvious repercussions, as does making any compromise in the quality of the services or products you provide. Customers and clients notice – trust us!
Finally, you must never cut anything that will impact the happiness of your staff. Your employees are your number one asset and you should never forget that!
Ultimately, the barometer should always be: will this save more money in the long term? Or does it add no real value to your operation?