I spend a lot of time talking about how to build your business up and increase your profitability. But I don’t generally spend time talking about one of the single easiest things you can do to accomplish that profit boost, so I’m going to fix that now.
Profit is simply the math equation of income minus expenses. Increasing income is one way to increase profits. Another just as effective option, however, is to cut expenses!
This isn’t nearly as sexy as bringing in new clients or launching a new marketing campaign or growing the top line 20% year over year, but it nevertheless contributes directly to building up your profitability.
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There is a limit, of course; you can only cut so much. But that said, it’s also often one of the easiest things to address, and you can make immediate changes that add to your profitability. Here are six things you can do in order from fastest and easiest to most complex and time-consuming.
The first thing to look at is any recurring spending on things you don’t use anymore or don’t need- generally software or other subscriptions you aren’t using or could scale back.
The second thing to look at is anything that you haven’t bid out in a while- things like insurance or any service provider agreements.
The third thing to look at is paying interest- can you reduce or eliminate borrowing, or at least refinance any short-term debt into long-term debt, or otherwise reduce your interest expense.
The fourth thing to look at is your suppliers- are you still getting the best deal, and are there other options for what you are getting it would be worth shopping around for?
The fifth thing to look at is your staffing cost, and make sure that everyone you have is still where they need to be and that you aren’t carrying more than you need or if some roles could be more effectively outsourced or otherwise changed.
The last thing to look at is your overall processes- are you as efficient as you could be, or are there things you could do that would save on your overall costs? Changes to your process can produce savings by cutting steps or automating things you currently do manually.
The problem I see is that many business owners get so busy with the day-to-day that doing things like this falls by the wayside, and as a result, you slowly accumulate expenses you don’t need or wouldn’t have tolerated in the early days.
The best way to combat this is to have a regularly scheduled time on your calendar, say once every six months, to do a quick review of everything you have and make sure it all still makes sense. It won’t take long but can save you a few hundred to a few thousand or more per month each time, and all that cumulatively makes a big difference to your annual profits.
If you haven’t done this in a long time, or ever, plan to do it now, or very soon. Then make it a regular habit. It’s one of the easiest profit builders you can do, and it is oddly satisfying to add money to your bottom line just by getting rid of stuff you don’t need!