We are going to look at 36 ways in which you can reduce the expenses in your business, both as a start-up or once you have become more established. We advise going through each of them, working out which ones apply to you and then coming up with a plan to implement them. So let’s get started…
Only spend on what you absolutely have to. – When starting a new business, it’s easy to get overly excited and want to go out and spend spend spend on all the things we think we need. And then a few weeks later we realise that half the stuff wasn’t actually necessary. It is therefore important to really carefully consider what you actually need when you are first starting out. And then maintain the habit of careful thought as you run your business. You should try to only spend on things that you absolutely have to. In other words, the things that are going to bring you some kind of financial return or save you money. If it’s not absolutely essential, don’t buy it.
Get a minimum viable product and test it first. – One of the biggest mistakes made by new businesses is falling in love with their product. They think they have a wonderful idea, maybe their family and friends tell them it’s a great idea, and they put lots of time, effort and finances into creating the product. Then they launch it and it makes few or no sales. What happened? The most important step before starting a business is market research – test test test, refine refine refine, test test test. What new entrepreneurs need to be doing is coming up with a viable product that is the minimum necessary to get it to market. Then start testing and seeing if the market actually wants the product. If not, go back to the drawing board. If they do, then you can expand or improve the product with new features and services. But the key is always to start small. Then you keep your initial costs and expenses as low as possible until you’ve proved your business proposal works. One of the advantages of being a Franchisee is that your franchisor has already done that for you. He or she has found and proved the model is successful. However, if you decide you want to make any changes, remember the need to test (at the minimum cost) any changes first.
Get an accountant. You knew this one was coming didn’t you ;). An accountant might seem like a big expense, but you are going to need one if you want to save money. First, they come with an accountancy software package included so you don’t have to pay for that and that brings you many advantages in time saved. Second, their advice will be extremely beneficial for what you can and can’t claim through the business. Third, they find the most tax efficient methods of claiming expenses, so hopefully, your tax bill will be much lower. Third, by law, you have to produce a set of accounts at the end of the year. It’s much simpler and less time-consuming for you if you have an accountant to do it.
Automate. – Your time is precious. When you have to spend time on unnecessary or repetitive tasks that could be better done by a computer, that’s not a good use of your time. Because time = money in many cases, wasting time is a cost to you. It’s time you aren’t spending on more important things like finding customers and selling your products or services. There are many options out there for automating things, from automated payments, automated invoices or bills (using accountancy software), automated email marketing and so on. It’s worth taking some time to explore what options are around (some of which are free). This will free up time for you and save you money.
Review Your Expenses Monthly. – Throughout this series, we have emphasised the importance of having a weekly time set aside to deal with the financial side of your business. During one of the weekly sessions, we advise reviewing all your business expenses to see if there are areas that can be reduced, changed or cut out completely. Your cloud accountancy software can very quickly produce a report on what you have spent that month so this doesn’t need to be a time-consuming process. The best time to do this would probably be the final week of the month, where you can then cancel any direct debits or make changes before new bills come out at the beginning of the next month.
Have a Budget & Review it Monthly. – Next week we will be looking at this one in depth, but alongside a Cash Flow Forecast, this is arguably the most important document you need to have to manage your finances effectively. It will show you what you plan to spend, and then you can compare it against what you actually spent (or earned) to check if you are on track and make any changes necessary. Like the expenses report above, it should be reviewed and updated monthly.
Consider the Costs and Benefits of every expense. – Before you buy anything, you need to consider the costs and benefits. This involves thinking about what the financial return is likely to be, could it be done in a better, more efficient or cheaper way, and is the cost something you can afford right now. All expenses add up, even small ones, so consider the costs and benefits of every single expense.
Postpone major purchases. – Especially when you are starting out, cash flow is vitally important and a major purchase can put a big dent in it. As above, think about the costs and benefits of it first, and if possible, try to postpone those large purchases until they become absolutely necessary.
Look for lower interest rates and avoid debt. – Whether it’s using a credit card, an overdraft or any other type of bank loan, interest rates can prove to be a very costly expense (sometimes even more than the initial loan). Where you can avoid debt and interest rates, do so. Where you can’t, make sure to look around and find the lowest interest rates possible. When it comes to paying off debts, prioritise paying off the ones with the largest interest rates first.
Pass on expenses to customers where possible. – There are often business expenses that you could pass on to customers in your prices, such as travel costs, consultancy fees and so on. Obviously, you don’t want to become uncompetitive, but think through how you spend your time in your business and whether there are any areas you could charge customers for.
Do you really need everything on that plan? Often, when we sign up for different products or services, they come with a whole range of services that we never end up using. Do you really need unlimited phone calls on your mobile? Do you really need 100gb on your internet plan? If you find yourself not really using all the services offered, call the provider up and see if there’s a cheaper option by removing some of the features you don’t use.
Don’t have an office/ premises if you don’t need one. – When it comes to offices and premises, technology and other solutions have made them an unnecessary expense in a lot of cases nowadays. A lot of people can work from home so this might be an option for you (and you can claim some of the cost towards your business expenses). If you need a professional office environment for meeting with clients, and it’s not something you need every minute of every day, there are now options available in most places to hire meeting rooms and offices by the hour for your meeting. And if you do need it more permanently, consider office sharing hubs which rent out space to a variety of small businesses in the same place. This could work out a lot more cost effective than having to rent or buy your own premises.
Encourage staff to work from home. – If you do have staff, and can trust them to work alone, then encouraging them to work from home is a great way to reduce your expenses – not only do you have less need for an office, but you also don’t need to pay utility bills either as they are using their own home. On top of this, they save money in commuting costs and get a bit of extra sleep in the morning, so they will be happier and more productive for you. If you want to keep an eye on what they are doing, there are options such as call tracking available.
Go Paperless. – The cost of printing, paper, postage can become a huge cost, but nowadays there is little reason to use a lot of paper and printers are becoming less necessary. You can scan or photograph a document using your mobile phone, you can collaborate with others by using cloud software such as Google Docs, you can get documents signed by customers and clients using electronic signature services such as Hellosign, you can write any notes or checklists down using services like Evernote, and you can save all your mailing costs such as stamps and envelopes by using email instead. If you need to work on a document or project together, most cloud-based services like google docs allow multiple users to view, share or edit documents, presentations and spreadsheets. And best of all, most of these software services are free.
Rent, rather than buy, equipment in the early days. – As we pointed out above, you want to postpone major purchases until they become absolutely necessary in order to preserve your cash flow. One great way to do this is to rent equipment rather than buying it. Over the longer term you probably will want to buy so it’s cheaper over the longer term, but when money is tight, it makes more sense to rent.
Minimise inventory costs. – Holding a lot of stock/ equipment is rarely a good idea. It is using up precious money needed for cash flow and it is costing you to store it. You want to minimise the cost of inventory as much as possible which means holding only what you really need. There are ways to work out what the exact number of items you should purchase at any time are, so ask your accountant and they can do this for you. The other thing to consider is whether your suppliers can ship equipment and products direct to customers. This saves you time in having to do it yourself, as well as reduced storage space. Often the shipping costs can also be a lot cheaper too.
Minimise your energy bills. – If you do have to have an office or other premises, you are going to want to minimise your energy bills. There are a variety of measures you can take to do this. First, make sure all the electrics are switched off when not in use, especially overnight, and not just left on standby. Second, install a smart energy meter to tell you how exactly and accurately how much it’s costing you. Third, change to energy efficient appliances and especially light bulbs such as LED lights. Finally, make sure to shop around for your energy provider. It’s not difficult to switch providers and there are plenty of price comparison sites out there which can help you switch easily.
Buy refurbished furniture. – If you need to put any equipment or furniture in your premises, consider buying second hand – it is often cheaper and better quality than buying brand new.
Review your Pay Per Click and Facebook advertising weekly. – If you are going to use pay per click and Facebook advertising, which can be a good idea, it is important to make sure you know how to manage your campaigns to be the most efficient possible. What this usually means is engaging in something called “A/B testing” which is a fancy name for testing two or more adverts at the same time to see what works best. When you create the adverts, make sure to make multiple versions of the same advert with just one thing e.g. an image or text different. Test the different versions for a week (using a low budget), work out what ones are giving you the best cost per click, and then turn off the worst performing ones. Update all the remaining adverts and test another aspect of the advert. Keep doing this until you find the features that work the best, and then you can put a bigger budget into that tested advert that you already know works. In order to do this testing and make sure you are not wasting money on advertising that doesn’t work well, you need to be reviewing the advertising on a weekly basis.
Take advantage of free advertising methods. Advertising can be expensive, but there are also free options out there which can really help (although it is important to note that free here doesn’t mean you won’t have a cost of your own time). First, there is social media advertising. Setting up accounts and posting regularly does not cost you money. There are even services such as Buffer or Hootsuite which allow you to schedule the week or month’s post all in advance so you can do it all at one time. Second, there is word of mouth advertising – one of the most effective free methods of advertising is to encourage your customers to recommend you to others. People do business with other people, and they want to be able to trust them. Having a recommendation from someone they know will go a long way to building that trust.
Use email software & build a list. A another free advertising method is using email software (as long as you have the emails to begin with). Using email will obviously allow you to cut back on your postage and packaging costs such as stamps and envelopes. But it will also allow you to build an email list. That is a list of customers and, most importantly, potential customers. Using a free resource like MailChimp, and combining it with an email subscription box on your website, (or Facebook’s lead generation campaign option), you can build up a list of potential customers. Once you have this list, you can then send them emails for free, advertising your services. We would recommend doing some research to find out the best ways to do this, how to automate it, and how to use things like landing pages.
Get training online. Technology cuts across many of these areas, but here are a few specific technology ones. When it comes to running a business, there is a lot to learn. While you could spend thousands on a course at a college, there are now many many options offered online, and often they can be very low cost or often free. For example, Google has created a free Digital Garage course aimed at small businesses which goes into everything you need to know to move your business online and market it effectively through the internet.
Use Open Source Software. While you could spend a lot of money on paid software such as Microsoft Office, there is also the option of Open Source Software. This software is often free and is just as good, if not better, than what is offered by companies. For example, LibreOffice is a regularly updated office software that can do pretty much anything Microsoft Office can do, but there is no cost. If you need to produce documents, presentations, spreadsheets and so on, but you don’t want to use online options such as Google Docs, then LibreOffice is a great option. And there are many others.
Use Online Software. There are a lot of online software options out there, from Quickbooks for your online accountancy, to Google Docs for your online word processing, to Skype for your online meetings. By using online software, not only is the data safer because it’s in the cloud, it’s also cheaper because you don’t have to buy lots of software licenses every year, you always have the most up to date version of software, and there is a lot less need for IT support costs as the software company deals with most of that.
Book travel in advance. Travel can be a big expense, but the costs can often be minimised. Most transport is also claimable as a business expense, but the best way to do this can be complicated, so make sure you ask your accountant. But regardless of whether you claim it as a business expense, when it comes to cash flow, the most important thing is minimising its cost in the first place. And the best way to do that is to book the travel in advance. The closer it gets to the travel time, the more expensive the travel is likely to become.
Hold Virtual Meetings. – with modern technology, you can often avoid travel altogether – by using services such as Skype to hold conferences across the country or world with people. For example, a Franchisor could hold a meeting or training with all their Franchisees (or potential Franchisees) around the entire country on Skype or a similar service.
Outsource. If you haven’t already read Tim Ferris’ The Four Hour Workweek, it’s definitely worth a read as it goes into a lot of detail about how to do this effectively. There are often small projects (or even ongoing ones) where it is not worth paying for an employee, so you can outsource it to virtual assistants or freelancers. There are plenty of websites such as Fiver, Upwork and so on, where you can find people who will do something for you for as low as £5.
Hire Interns.– There are many young people out there or people who are looking to change careers, who are desperate for experience in a particular field to help them get a job. You can hire them for no cost and they can do a lot of the more repetitive, simple tasks for you that you don’t have time to do. For example, finding and scheduling social media posts, data entry, market research and so on. Be aware that there are legal issues to know about, and they will require training so think carefully before doing this.
Reduce wasted time. – This is true whether for both you and any employees you might have – it is important to maximise productivity, and minimise wasted time in order to keep costs down. Think about blocking access to sites that waste time (such as social media browsing), and using services that track your time and employees time to see where improvements can be made.
Working With Others
Form a business cluster with others/ with franchise network. If you are part of a franchise network, it is worth exploring ways to work together to minimise costs. For example, you could pool resources to have a joint advertising or training budget. You may be able to buy software in bulk together to keep the costs lower. There are many options. If you are not part of a franchise network, consider finding or forming a business cluster with other small local businesses so you can share costs together.
Talk to your franchisor/ franchisees for tips.– And follow their proven plans. As a Franchisee, you have a very important support network available to you – your franchisor and the other Franchisees. Identify the most successful Franchisees in your franchise network. Ask them for tips on what the expenses should be in your business and what ones you really don’t need. And talk to your franchisor – don’t forget that they have been through this – they’ve established the proven model that works. You don’t need to come up with ideas on your own on how to do things or reinvent the wheel. They will know what business expenses you need and what you don’t. They will probably have researched the best options for doing things at the lowest cost, so they are a valuable source of information if you want to keep your costs as low as possible.
Consider bartering. Sometimes there are things you can do as a small business for another small business, and they can do something for you in return, that will mean you don’t have to spend money. Maybe there is a graphics designer who could produce some quality looking advertising for you, while you could produce lots of blog content for them and so on. Finding ways to help others in return for them helping you, rather than any exchange of money, is a great way to save on your costs when first starting out. You could even do the same within your franchise network.
Compare Providers. Whenever you need people to provide a service to your business, it is always a good idea to compare suppliers. This ensures you can get the best value for money. Start with comparing the providers of your energy (as we mentioned above), insurance and so on. To do this, use price comparison websites which make it easy. When you find the best deal, call the company directly so you save on the fee of the price comparison site. If you need things like decorating, and so on done, then you should be getting multiple quotes to find the cheapest or best value deal.
Delay paying suppliers. – One of the keys to maintaining good cash flow is ensuring money flows out of your business as slowly as possible. Always ask for terms on everything so you don’t have to pay suppliers immediately. Delay paying them as long as your agreement with them will allow (but don’t ever be late in paying). This will mean money stays in your bank account as long as possible and enables better cash flow management.
Negotiate with suppliers. – Everything is negotiable. Don’t agree to the first price or offer you get from suppliers, make sure you negotiate as much as possible. This will cut your costs and minimise your expenses.
Ask for Discounts. – Just as you can delay paying your suppliers, and negotiate on price, you can also ask them for a discount, especially if you can purchase more at one time e.t.c. (but make sure you take into account any storage costs).
Find Out More
Well, that’s all we have time for this week. We hope you are enjoying this series and applying the practical techniques we are recommending to help you become a master at managing your business finances. Next time we are going to look at how to create a budget.
To find out more about how Stryde can help you, please call 0330 043 4589.