6 Tips to Manage Business and Reduce Your Costs
Costs matter; they matter greatly.
In its infancy, most business owners know this and agonize over every business expense.
But as the business grows, they find themselves no longer able to track expenses as closely.
Here are six tips to help manage business expenses and control your costs as you scale (I also suggest you review the “8 Tips to Control Your Staffing Costs” article I wrote a short while ago.)
- Consolidate your purchases and negotiate better cost/pricing.
One exec we work with saved her company over $100,000 a year on their $1 million per year direct mail budget by consolidating their print and mailing house services to one company.Also, remember that reviewing your key vendors is especially important for companies that have gone through a recent burst of growth. We often see companies paying prices based on purchase volumes that they far exceed. Renegotiate frequently. We’ve seen this one tip save our business coaching clients millions of dollars.Also, check around your community for local buying organizations that gather all the local businesses in the area and use their collective buying power on behalf of all the members.
- Get vendors to compete for your business.
Make sure they know about each other, without rubbing their faces in it.It’s amazing how much better your pricing can be when your vendors feel the hot breath of their competition on their necks.Even if you plan on staying with your current vendor, the very fact that you know and they know that you’re getting outside bids will keep their pencils sharp and help ensure you get better pricing.
For example, go back to your current shipping vendor and say, “Mark, my boss has asked me to get competitive pricing on our account for the coming year. I told him that it’s my preference to stay with you, but he’s made it very clear after tracking expenses that we need to reduce costs. So can you please look at our purchase history over the past year and do your very best to give me your best rates for the coming year. This way I’ll be able to do all I can to help you keep the account versus it going to Acme or Jones, Inc.”
- Review your vendors regularly.
Building on the prior tip, make an annual or semi-annual review of all your key vendors a standard practice in your company.Also make sure you flag all automatically renewing contracts to pop up for invoice review and rebidding sixty to ninety days before their renewal.Better yet, cross out the boilerplate language from your vendor’s contract that calls for an automatic renewal and instead write in that you have the option to renew, but not the obligation.
- Train your staff to ask for and get discounts.
A short negotiation course on how your team can get discounts from your vendors, plus consistent recognition for team members who do this, pays off handsomely in increased cash flow. This practice alone could reduce your variable expense report by 5–10 percent.For example, Daniel, the operations manager of one of our long-time business coaching client saved his company $140,000 by renegotiating key contracts in his first 12 months after attending our negotiations training.
- Wherever possible, make expenses variable versus fixed.
You can change variable expense when you need to, dialing them up or down to suit your cash flow situation and business needs.This flexibility is highly valuable.For example, could you use performance-based compensation versus guaranteed payments? Can you rent, not purchase? Can you lock in an option to review, instead of a contractual obligation?
- Cultivate fiscal discipline as a core company value.
Symbolic choices you make or allow as the business owner will find their way into the culture of your company.Sure, you can buy that fancy car or travel first class on your company’s dime or as a personal expense, but just know that your team is always watching your example.I remember one start-up who had a building near mine. The owner started parking his yellow Lamborghini in the employee parking lot each day. Want to guess what kind of message that sent to his staff on how he felt about spending money, including company money? So be smart with the choices you make and the actions you take.
Ultimately, it’s important to properly track and manage your business’s expenses especially if you’re a small business owner. Proper bookkeeping and reviewing all business expense reports help identify where cost cuts can be applied, unnecessary expenditures, and being prepared for tax season.
Here are some other quick tips for tracking expenses:
- Be Automated.
Accessing accounting software can make tracking expenses simple! Make it simple for you and your accountant to import information directly to your tax return.
- Hold on to Recipes.
Yes, that’s right, save your recipes. If you ever get audited, you’ll need to provide evidence for a tax-deductible expense. A great way to do this is by giving yourself a business credit card. Not only does this give you an electronic receipt but also breaks down your spending into categories.
- Timely Bookkeeping.
As soon as the expense occurs, be sure to promptly record it.
For more ideas on growing your business, including a free tool kit with 21 in-depth video trainings to help you scale your business and get your life back, click here.