All businesses should review their expenses periodically.
Prudent expense management helps ensure that valuable cash resources are used wisely. And sometimes, a business may NEED TO reduce expenses as a matter of survival.
No matter what the circumstances, here are some Best Practices in reviewing and managing expenses.
When cost-cutting, focus FIRST on activities which do NOT directly generate a profit, that is, the non-core functions.
The core functions of your business drive revenue and profit, help you to differentiate yourself in the market and usually involve interaction with your customers. These core activities could be inefficient… but look first at the support (or non-core) functions including finance, legal, administration, the office, human resources, data processing, supply-chain management, and logistics.
Every activity or initiative in a business has a lifespan. That means even a really beneficial activity will eventually become inefficient or redundant. Expense reviews are an opportunity to look for redundant positions or processes that can be eliminated or restructured.
Payroll may be the subject of cost cutting. It’s likely your employees have a good idea what is going on and an honest presentation of the facts will bring the best results for the organisation. Set reasonable expectations about the future to build a track record and trust.
How the market perceives your situation is important. Completely ‘falling off the radar’ may raise questions among prospects, clients and referral partners. Maintaining a presence, for example, in social media is an inexpensive way to ‘be seen’ in the market.
All of those ‘minor expenses’ add up. Don’t ignore office supplies, snacks, furniture and that fancy coffee machine.
Sounds simple… but most businesses are paying for things without properly scrutinising whether they are adding value. Autopay makes this scrutiny even harder… and delays the cancellation of underutilised subscriptions.
Look especially at suppliers where you have a long-term relationship. It may be time to revisit the pricing and terms of payment. Sometimes just asking the question about costs will trigger your suppliers to offer a better deal.
And maybe you’re paying for things you don’t need, like cell phones assigned to ex-employees or seldom-used printers or copiers.
Keep a record of all long-term contracts and set alerts so you can revisit these several months ahead of expiration. Then negotiate, instead of simply letting the contract renew with the original terms.