Business owners are always looking at ways to boost their cash flow. Although increasing the sales revenue is the most popular way of increasing cash flow, cutting costs is also a very effective way of increasing profit.
If you run a business or manage the cash flow of a company, you must be aware of the business costs that soon mount up. Here are the main areas you should concentrate on when looking to cut costs and improve your bottom line. Taking a look at these areas of your business should give you some idea of how to improve the profitability of your company.
1. Debt
One of the biggest problems that companies in major economies like Australia and the United States face is the high interest payable on both unsecured and secured debt. If you are looking at reducing your expenses, the first thing you should look at is debt.
Check the kind of debt you have, and the percentage of your revenue that goes into servicing the debt. One of the ways of dealing with this problem is to check the rate of interest you are paying. If you are getting a loan at a rate above market conditions, you must renegotiate that and decrease the actual interest.
If you are facing cash flow problems, you could opt for debt restructuring. Debt restructuring is a process that allows companies that face financial distress to renegotiate their debt to improve liquidity and continue normal operations. There are companies that can help you restructure your debt and reduce your interest outgoings. These companies usually charge a small fee for their services, but many businesses find it’s well worth looking into.
2. Overheads
There are many business owners that end up with overheads they no longer need. Overheads are expenses that are incurred for output generally and are not related to any particular work order. For example, the printer you use in your office may not be associated with any particular job or order.
All the expenses you incur on running your office are overheads, and there are many you cannot renegotiate, but costs for things like printing, including the cost of printer cartridges and paper are overheads that are possible to find a better deal on. To reduce your overheads, you must review your budget regularly and make sure all the expenses are still necessary, and that you’re getting the best deal.
3. Fixed Expenses
When you examine the balance sheet of most companies, you will find that profits of most companies are affected because of high fixed costs. To reduce these costs, you must approach your service provider and renegotiate the prices.
You can start by building your relations with the vendor and you will be surprised how many vendors are willing to renegotiate with you to keep your business. If the vendor does not budge, you can consider switching. Some of the agreements you can renegotiate include property rentals and machinery leases, amongst others.
4. IT Purchases
Buying software at retail prices will increase costs. For example, if you plan to use a particular piece of software for a few years, paying a monthly subscription for it does not always make sense. Instead, see if you can pay a one off fee for the licence.
If you’re looking forward to business growth, you could opt for a scalable solution, perhaps a cloud based one, that could grow with your business, and where you’ll only pay for what you use when you use it.
Knowing what costs can mount up in your business will allow you to see the potential for cutting these where you can, allowing you to stay on top of your business expenses.