Many business owners focus on increasing revenue. While it is critical to increase revenues to sustain your business, it is more important to minimize costs.
Why is that?
Every dollar from a cost reduction cost goes to the bottom line. However, only a fraction of the dollars from increased revenue go to the bottom line. Assume that the net profit of your company is 25% percent. If you save one dollar, the benefit will be four times greater than if you increased your revenue by that same dollar.
Below are the top three ways that you can save money for your small business and medium business:
1. Minimize taxes – Depending on the type of business, taxes may be your greatest expense. As a result, if you can find a way to minimize your effective tax rate, you will see huge benefits in savings. This may require hours of labor or even paying a professional for consultation. However, the return on investment can be huge. The good news is that many professionals will review previous tax returns for free or at a discounted rate to earn new business. Their is no harm in getting multiple opinions and going with the professional that you trust and can lower your effective rate and the dollars that are spent.
2. Lower Insurance Costs – Insurance is one of those necessary expenses that a lot of small and medium sized business owners know nothing about. Insurance agents who sell policies may have their best interest when they quote prices (i.e. selling the policy with a higher premium and higher commission). The best way to combat this is to get multiple bids from multiple agents. When you compare the different policies, you will find that there is room for negotiation and getting a better premium. The greatest thing is that there is no harm in shopping around for insurance policies because getting a new quote is almost always free.
3. Review your profit and loss statement for extraneous expenses – No matter how lean you run your business, you will find that there are always extra expenses that are not necessary. The first thing to look at is recurring expenses. If you can cut these expenses, you will find that the benefit will multiply for months to come. A second strategy may to have a target reduction in expenses. If you shoot for business.
Remember, if you cut too many expenses, especially those that do not relate to labor, it is easy to reorder the service or product. This should give you the freedom to cut your expenses aggressively.
Saving money for small businesses and medium businesses can be a lucrative venture and may be the difference between a thriving business and a bankrupt business. Remember that the best savings come from ongoing activity and constant review as opposed to large single activities.