Analyze Your Expenses and Increase Your Profits

Who doesn’t want a more profitable business? We’re in business to help people, sure, but we’re also here to make a living. And if we want to make a good living with a business, we need to be profitable.

Generally, there are two ways to increase your profit:

  1. Increase revenue (while keeping expenses in check), or
  2. Reducing expenses (while keeping revenue the same)

This article will focus on the latter—reducing expenses to increase your profitability. Because while increasing revenue is important, most businesses forget that increased revenue is not an excuse to lose sight of expenses. The beautiful thing about this strategy is that it simply involves cutting some expenses to increase what you keep. Expenses that you probably don’t need anyway.

To reduce your expenses, simply conduct an Expense Analysis. There are many ways to conduct one, but here’s a simple method that anyone can use:

Make a list of your common and recurring business expenses.

  • Go through your bank and accounting records, and be on a special lookout for those small monthly subscription services that you no longer really use or don’t use fully.

Trash or Trim your list.

  • Write TRASH (or strike through) any expense that you can eliminate without negatively affecting your business (think about services that you no longer really use, but are still paying for)
  • Write TRIM next to expenses that can be negotiated down to a lower rate, replaced with a competitor at similar quality but lower price, or downgraded without issue to the business. 

Contact the vendors to cut/trim expenses.

  • Do your research ahead of time if you plan to ask for a reduced rate.
  • If you’re switching software, set up a free trial of the new service first before cutting out the old one. If needed, hire a professional to help with the transition.

Any business can do this in a couple of hours. The more your cut, the more profitable your business becomes–as long as you’re not cutting out vital services in an effort to save a few dollars. It’s worth weighing whether cutting out a service will mean less fluidity of workflows or more time investment for you. 

We recommend going through this process on a quarterly basis at a minimum. This practice will keep you financial efficient and profitable.

Not sure if you can eliminate a particular expense? Try this test…

Eliminate the expense for a month, but be prepared to regain if needed. How do your customers react? Does your team notice its absence? Are you having to spend any additional time connecting dots that are no longer connected? If no one is negatively affected, then you could probably eliminate the expense.

Remember the old saying, “It’s not what you make, it’s what you keep.” Doing a quarterly expense analysis will help you keep more of your money, and help you earn higher profits. If you need help implementing Profit First in your business, let’s connect. Schedule a call with us today.

Eric Johnson

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