The 3 questions every business owner needs to ask.
If cash is tight in business most owners will immediately turn to sales. The solution is simple, more sales equals more cash. This is true to a point, but often the pathway to generate more sales sustainably in a business;
Takes time and a lot of effort and,
Costs money… as the old saying goes it takes money to make money!
So, when cash is tight it may be far more economical and much faster to focus on expenses.
Cutting the cloth, sounds easy but you may end up cutting the wrong expense and end up make doing business even harder.
To make the process easier here are the 3 vital questions you need to ask when reviewing your expenses. The result will be a leaner business ready for growth.
The easiest way to review expenses is line by line, or as each expense is paid. A review requires three questions to be asked of each and every expense.
1. Do I need this for my business?
It is important to understand the difference between a need and a want. If the answer is yes you need this product or service to survive in business, you would proceed to the next two questions of the review.
If the answer is no, then there is no need to continue with buying this item. Stop purchasing this item or cancel the service.
For example, does my business really need to supply all clients with a choice of still and sparkling water. You can probably get by on the still for now.
Using our own business as an example, we recently cancelled our cleaning service. We have a small office which takes us around 20 minutes a week to empty bins and clean surfaces to keep our office neat and tidy, this saving alone added up to over $6,000 a year.
2. Do I need this level of the product/service?
Assuming you have decided that you need the item under review then the next question to ask is “Do I need the amount of the product or level of the service?”
Are you paying for the “Rolls Royce” version with features and options you don’t use, or could you do with a more budget conscious “Suzuki” version with everything you need and nothing you don’t? (no offence intended to Suzuki drivers 😊)
We often see people on subscription services with IT programs, marketing services, insurance cover, phone plans etc. where they are paying for a level of product or service they just don’t use all the features and there is a lot of money to be saved.
Again, in our business, after a recent review we saw we could reduce one of our software licenses from a four-user license to a two-user license level. There were only two people in the business who were regularly using that particular software and on the odd occasion another team member needed access, it was only to easy to accommodate at that time, rather than paying for the additional licenses every month just to have on call.
3.Are there alternatives/substitutions?
You have now decided you need the item and an appropriate level of the product or service being used, now the final step is to check the market. Every time a contract or subscription is up for renewal or a bulk good order needs to be made, you should be checking your current price against a market alternative. Businesses right now are falling over themselves to work with you, so being savvy enough to check your current service against the market can save you literally thousands.
The go to example is phone contracts. Phone companies are always one upping each other with offers to entice you to their network or brand. At worst you take a competitors offer and put it in front of your current provider and they can elect to match it or at least come within striking range to retain your business, or, be prepared to watch you walk away. At the end of the day if they are not loyal to you by offering you the best deals when they come up, why be loyal to them? We find a lot of people mistake the word loyal for the word lazy.
An Expense review is unique to every owner and every business as the items we need to run our business will be vastly different to what you need for yours, but the methodology in conducting a thorough review is the same and we encourage you to start your review today as you could be saving thousands of dollars that could be bolstering your cash balance.
We also know that no matter how lean (not mean) your expenses are, there will come that month where everything is due for payment at once and you may not have the cash to cover this.
We can help you with a short-term business loan or a line of credit to bridge the gap and set repayments to match your future cash flow. You can repay the loan and continue to build your cashflow for better provisioning for the future.
For more details on how this may work for you or to get a copy of our Expense Review Worksheet just reach out via firstname.lastname@example.org or if you need lending assistance head to our home page and hit the Apply Now button.