Your business exists to make you time, money, and to make your life significant. So when it’s time to cut down on your expenses, it’s important to have your goals in mind and decide where exactly to spend your hard-earned money.
Examine Your Goals
The most important thing to do while deciding how to pare down your expenses is consider your long- and short-term goals.
If you’re exiting soon, you’ll want to pay attention to any add-backs you might have to deal with in a sale. If you’re looking to minimize the amount of taxes your business pays in April, you should get in touch with a CPA who can help you be aggressive about write-offs.
No matter your goals, understanding the progress you want to make toward your future will help you make smart financial decisions in the present.
Four Questions to Ask Yourself When Cutting Expenses
There are four questions you should ask yourself when choosing where to continue to spend money for your business.
Are you looking to:
Increase your revenue? – Investing in a new product or manufacturing process could help you create bigger margins or expand your customer base.
Decrease your future expenses? – You may want to spend more money on accounting and tax services, since having these in order is a good way to make sure you’re not spending more than you need to. As a retailer, it is also helpful to consider a package or brand redesign to decrease the cost of attracting new customers.
Improve your cash cycle? – See if there’s a way to get yourself paid more frequently! For e-commerce sellers in particular, negotiating to pay your supplier less often will turn cash more quickly, as can partnering with a new warehouse or third party lender.
Improve your life? – If you have a personal preference, be it a supplier, a software dashboard, or a certain type of office coffee that makes you happy, don’t be afraid to spend the money on it. Sometimes these “unnecessary” expenses are what make the work more enjoyable, which means they’re perfectly reasonable expenses.
Spending Categories Worth Examining
Just like there are certain types of expenses that may benefit you in the long run, there are also a few that we tend to see our bookkeeping clients spending money on unnecessarily.
Contractors that help out your business can be a great investment, but we sometimes see clients spending money working with partners that they’re not getting a lot out of. Similarly, take a look at your software subscriptions. Often it’s easy to either forget to cancel these recurring charges when you no longer need them or to double up on two systems that serve the same function.
Non-business expenses that you charge to your business accounts are fair game for cutting, since they’re not necessary for the health of your business. If some of these fall under the “quality of life” category we discussed above, they might be worth keeping, but don’t go overboard here.
Research and development are important expenses for product developers, but be careful not to spend too much here if creating new products isn’t your bread and butter.
And finally, your owner’s salary is an important category to keep an eye on. Yes, you always want to pay yourself first, but make sure you take a salary that leaves behind enough cash for all of the other necessary stuff (like the categories mentioned here) to happen.
If you’d like help organizing your books and taking care of extra expenses, get in touch with Seller Accountant for a free discovery call today.