The challenges of running a business or nonprofit and staying on top of the financial bottom line can be challenging. Growing your top line revenues is critical to your success in 2020. However, keeping your expenses in check is just as important and can help sustain your business while you build your revenues.
Having an expense management process, where you review and analyze the details of your spending activity, will help keep your costs down and in line with your industry standards. Here are six expenses that will yield the biggest bang for your buck and are worth investing time reviewing to reduce your costs:
- Payroll – Payroll is often the largest expense for most businesses and it’s easy to ignore. If you are over-staffed, then you are reducing your chances of sustaining your business. Look at each staff position and assess employee productivity. Determine how much headcount your business can actually sustain based on industry averages. If your payroll is too high, you should consider alternative staffing scenarios to better fit your current ability.
- Inventory/Cost of Goods Sold – For many businesses, cost of goods sold is typically a large expense. Make sure you have an inventory tracking system in place. Review your costs of goods sold each month as a percentage of sales. If you’re not where you need it to be, it’s time to take a deeper dive and figure out why your business is not producing the desired results.
- Credit Card Fees – When was the last time you looked at your merchant fees? Better yet, how about converting credit card payments into ePayments, where the fees are a fraction of the cost? Give your customers and clients better options to pay that don’t have high merchant fees.
- Advertising/Marketing – When was the last time you calculated your Return on Investment (ROI) for your various Advertising and Marketing expenses? Many businesses have recurring charges that are returning very little to the financial bottom line. It may be time to get rid of these charges and tighten up your budget.
- Equipment Rental/Leases – New equipment to service customers and clients can generate new revenue streams, but having the wrong lease on your equipment rentals can cost you in higher interest. These costs can add up over a 3-5 year term. When pursuing a new lease, shop around for the best financing and don’t just go with what is offered because it is convenient. Also, make sure you have a capital budget plan in place each year to account for new equipment and the cost that comes along with it.
- Professional Fees – How many third party consultants and other professional service providers are you paying? Are the services they are performing helping you achieve your strategic goals? Calculate the ROI and value each one is providing. If they are not helping you achieve your desired results, you need to re-evaluate the expenditure.
In sum, by putting a process in place to review your largest expenses on a regular basis, you can achieve the cost reductions that you desire.
Contact Us if you’d like to learn more about how Consultance can help you with cost management through our CFO Services.
Consultance leverages exceptional talent, proven processes, and top technology platforms to deliver timely & accurate financial solutions that help small and medium-sized organizations improve productivity, increase profitability, and achieve their goals.
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