Running a business will always mean incurring certain expenses, or ‘expenditure’. There are always costs, overheads and supplier bills that can mount up – these expenses will deplete your cash position, making it more difficult to grow and make a profit.
So, what can you do to reduce your expenditure levels? And what impact will this have on your overall margins, profits and ability to fund the next stages in your business journey?
Getting proactive with your cost management
Expenditure and cost management is all about getting in control of your expenses – and, where possible, aiming to reduce the level of costs and overheads that you incur as a company.
Why does this matter? Well, excessive spending eats into your cashflow, reduces your profit margins and will hinder you from achieving the profits that you wish to achieve and that you’re capable of as a business. So if you can get proactive with your cost management, you can actually make your company more financially productive – and that’s great for your overall business health.
So, what can you do to reduce expenditure and slim down your company expenses?
Here are some key ways to reduce expenses:
Reduce your overheads – your overheads are the unavoidable costs of running your business, producing your products or supplying your services. If you have premises, these overheads will include rental payments, utility bills and even the cost of paying your staff. Breakdown your figures and see where there are opportunities to reduce these overhead costs. That could mean moving to smaller premises, or reducing the size of your workforce, to reduce payroll expenditure.
Limit on your staff expenses – if your employees can claim expenses, or buy raw materials and equipment with the company’s money, these costs can soon start to rack up. It’s a good idea to put a spending limit in place, so each staff member can only spend up to an agreed amount. Having a clear expenses policy helps, as will training up your staff in good spend management techniques. Expenses cards allow you to quickly set spend limits, track expenses and pull your expenses data through to your cloud accounting platform for processing.
Look for cheaper suppliers – if you can reduce your supplier costs, this will go a long way to bringing down your overall spend. If you’ve been with certain key suppliers for years, look around for new quotes, look at current market prices and see if you can negotiate better deals. And if your old suppliers aren’t flexible enough, try swapping to newer, more eager suppliers who will be willing to meet you in the middle on price.
Make your operations leaner and more effective – the bigger your operational costs are, the less margin you’ll make on your end products and services. One way to resolve this is to aim for a ‘lean approach’, paring back your staff, resources and operational complexity to the bare minimum. By making the business as lean as possible, whilst still delivering the same output, you keep your revenue stable, but reduce the spend level that’s eating into your cost of goods sold (COGS). The smaller your COGS, the more profit you make on each unit or sale – and that means better cashflow, more working capital and bigger profits.
Explore tax reliefs – you might assume that tax costs are an unavoidable expense when running your business, but it’s worth exploring which tax reliefs, grants or other business benefits you may benefit from. For example, research and development (R&D) tax credits that help cut your corporation tax expenses if you can demonstrate that you’re involved in innovation and ground breaking R&D within your industry or specialism.
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