The seventh way to grow your business is to reduce your overheads. These are the fixed costs in your business that don’t change much as your sales increase, e.g. phone, power, rent, interest, etc.
How often do you review your overheads? You should do this at least annually. Simply go through each expense line in your annual financial statements or Xero reports.
It’s also a good idea to review your regular automatic payments and direct debits from your business banking software. Are you paying for anything you don’t need or use?
Most business owners are careful about what they spend, however it pays to make the annual expense review a normal event. Here are some items you may want to zero in on:
1. Phone and power contracts.
Are other suppliers offering better deals?
2. Bank interest.
Are you paying the lowest rate possible?
3. Subscriptions for cloud-based software.
These monthly costs may start small but creep up over time; adopt a use it or lose it philosophy.
4. Computer support contracts.
Does your IT support contract need a review and reset now most software is in the cloud?
Are you getting an ROI (leads) from your advertising? Maybe your traditional advertising spend needs to change.
6. Print costs.
In addition to focusing on the above expenses, also make sure systems are in place to ensure you maximise prompt payment discounts.
While on the subject of overheads, let’s talk about accounting fees! If you believe your accountant is a cost, you should minimise that cost. On the other hand, if you consider your accounting fees are an investment, then maybe you need to invest more to grow or improve your business.
Talk to us about how we can help you get a plan in place. Having an annual plan and someone independent to provide you with ongoing accountability is the easiest and most supported way to achieve your goals.
“If you don’t know where you are going, every road will get you nowhere”. – Henry KissingerLEARN MORE
The sixth way to grow your business is to reduce your variable costs. These are the costs which increase as sales increase. By reducing your variable costs, you increase your profit margin.
For some businesses, focusing on reducing variable costs is fundamental to their growth, particularly if their gross profit margin is below where it should be in their particular industry.
Here are some of the most significant ways to reduce your variable costs:
1. Reduce rework and wastage.
If you make products or provide services, your business is likely to be experiencing some rework and wastage. Is time wasted fixing defects and mistakes? What is the cost of that rework, including raw materials and labour?
2. Get better terms from suppliers.
Negotiate better rates and discounts for early payment. If you’re a VIP customer, you have some leverage. Use it.
3. Improve efficiency.
If you provide a service, make sure your team records their time on jobs in real time. Set efficiency targets and make the actual results highly visible to your team.
4. Invest time in better systems and technology.
Use cloud apps to manage stock levels, make it easier to record time, and automate processes that boost everyone’s productivity.
5. Manage wage and salary costs.
How is overtime managed? Do commissions and expenses paid to sales teams have appropriate management controls?
There are many more ways to cut variable costs and therefore improve your profit margin.
Contact us so we can facilitate a thorough review of your margin improvement potential.
We’ve developed a great process that will help you set an action plan to lift your margins.
“Beware of little expenses. A small leak will sink a great ship.” – Benjamin Franklin