Every small business owner faces the same issue—managing their expenses. While most small businesses keep a keen eye on growing the top line—revenues—many small businesses fail to address their expense line items on an ongoing basis. Granted, once the business started, all line item expenses were carefully reviewed. But, now that your company is established, when is the last time you went line-by-line on your P & L to see if you can pare expense cost from your organization?
All too often, business owners become complacent with their run-rates on expenses. After all, it is a lot of work to change banks, for instance, in order to reduce banking fees. But, there are some real hidden savings in everyone’s P & L that may be able to move additional dollars to the bottom line. I think we can all agree, we as business owners would rather have the dollars ourselves than to blindly pay dollars to an Internet or phone company.
Establish a habit of reviewing each line item on your P & L a minimum of once annually. I use the trigger points for filing my taxes as my reminder that it is time to tear my P & L apart. Even if I can only shave a couple hundred bucks off my expense line monthly, this exercise forces me to review my business on an ongoing basis. While a hundred dollar savings may not seem like much (or maybe it does!), it all adds up and keeps the money where it should—in your pocket!
Here are some of the key expense line items that I make sure I review every year:
Health Insurance: This one is a complete non-brainer. The changes that have taken place over the last few years with the passing of the Affordable Health Care Act as well as the changes that are forthcoming, mandates that you look (and shop) your healthcare every year. This is a non-give or you will end up paying through the nose without ongoing monitoring of costs. What lies in store over the next few years with regard to healthcare costs is anyone’s guess but don’t be surprised if your costs accelerate significantly. Failing to monitor healthcare costs on a frequent basis (perhaps 2X/year) could end up eroded all of your profits from the business. The dollars here can be significant numbering in the hundreds per month.
Telephone Expense: The telephone industry is an extremely competitive space and plans are continually being modified. While most phone companies (cellular) require two-year commitments, plans can change significantly over the course of those two years, and you should be prepared to switch based on your actual usage of your plan. If you have many rollover minutes, it is time to reduce your allocation plan – thus lowering your costs. Find the plan that fits your actual use and you may be able to knock $20 to $50 a month off your expense line without sacrificing service.
Internet/Cable/Data Expense: Cable companies and Internet providers are notorious for offering “teaser deals” to get you to commit to their services. Generally, these last six months to a year and if left unchecked, can significantly increase your expense line at the end of the promotional time period. Many business owners load up on all the “extras” during these promo periods yet never actually use all that they have committed to. This is a good time to pare down the services and only pay for the ones that you need.
Professional Services: Most small businesses have to tap outside professional services throughout the year. These can range from attorneys to CPA’s to bookkeepers and so on. Regularly monitoring the professional fees line can help shave dollars off your expenses. You may have needed some of those services early on, but perhaps there are some that you can minimize or even put out to bid. While most outside professional resources are selected on both price and trust, it never hurts to keep these resources honest from a pricing perspective.
Utilities: Much like your phone and Internet bill, some common sense cost-savings in utility expense can be easily implemented. Knocking a few degrees off your heat, adding light sensors that turn the lights of in unused offices and following other general cost-savings techniques help to shave unnecessary expense. While this is an area that is hard to gain any negotiated cost-savings, getting by with less usage can save a dollar or two.
Rent/Leases: One of the smartest decisions I made when I started my business was to minimumize the need to have to rent an office. For service providing companies, carving out a dedicated space within your house can save a significant amount of cash each month. One has to be disciplined to work from their house, and if you can pull this off, the break-even of your business can plummet. For those businesses that occupy commercial space, opening up a dialogue on rent reduction with your landlord or equipment provider is a prudent way of letting them know you are on top of it and are shopping.
Travel & Entertainment: Lastly, managing a widely variable expense line item like T & E can pay off handsomely. Technology continues to advance and the pipe dream of video conferences has now become a reality. While I can appreciate the need for “face time” with a client or customer, you may be able to augment your meetings with video conferencing via Skype or others. You may be able to shave off ten to twenty percent from your travel budget, without sacrificing the benefits of in-person meetings.
The bottom line is that the hard-earned dollars you make on the revenue side, should be highly protected by you in the form of expense reduction. You are in business to earn money for one person — you! The hard work you achieve should be your reward, not the reward of a service provider or vendor. Build this expense monitoring discipline into your business annually and you will always ensure that dollars that are earmarked for your business, stay with you.
John Matthews is the founder and president of Gray Cat Enterprises, Inc., a strategic planning and marketing services firm that specializes in helping businesses grow in the restaurant, convenience and general retail industries. With more than 20 years of senior-level experience in retail and a speaker at retail-group events throughout the U.S., Matthews has recently written two step-by-step manuals, Local Store Marketing Manual for Retailers and Grand Opening Manual for Retailers, which are available at www.graycatenterprises.com.