Keep a Firm Grip on all Your Costs – Managing Expenses will help you weather the downturn and benefit you as you expand and grow.
A challenge for all business owners, CEOs, CFOs or any decision maker is to figure out how to manage expenses to maximize cash flow. Above all, this requires a focus on cost cutting and more efficient processes to run operations. Not running out of money is one of the key priorities for any business.
So, what can you do to manage expenses and maximize cash flow?
Be Ruthless with Vendor Expenses
Scrutinize your overhead vendor expenses. For example, these expenses can be 15-20% of your total expense and reducing these expenses will free up cash and drive profit to your bottom line. On average we find that many firms can reduce these expenses by nearly 30% which could improve overall profitability by as much as 5%. Some considerations include:
- Investigating new technologies.
- Uncovering and eliminating hidden fees.
- Identifying and recovering overcharges and billing errors.
- Ensuring you are on the appropriate and optimum rate plans for your business.
When you’re busy running your own business, keeping up with the latest technologies, services and rate plans offered isn’t always possible. Having an expert with clout on your side is an invaluable resource to weed out and reduce unnecessary expenses from your business to free up cash and drive profitability.
Inventory is really cash sitting on your shelf. First of all, set up a trackable inventory system. Excess inventory will be a drag on any business, but especially in times of an economic downturn. On the other hand, low inventory may impede sales. Adjust inventory on a regular basis – your cash flow depends on it!
- Make sure you have a tracking system you can easily review – “missing” inventory is an expense you want to avoid.
- Review software licenses and other subscriptions. Have employees left or changed jobs and you’re still paying for licenses or subscriptions you don’t need?
- Review your lease.
- Consider engaging experts that work on your behalf to help your business lower and manage these expenses.
Have a Strategy and Plan – Stay on Top of Expenses
Get key financial reports and functions in order. Then ensure you have regular reviews and processes to ensure expenses are completely updated and accounted. Next, it may need getting help from a bookkeeper to pay bills, get advice or software to manage invoicing and payments. Businesses should take time each week to review finances and to send out invoices. Most importantly, a regular cadence is important to ensure invoicing and collections are done in a timely manner.
- Have as much credit as possible. Get a line of credit with your bank to have it available should you need it. Businesses with relationships with their banks had a better chance at getting PPP.
- Use debt as a tool and not a crutch. Businesses need long term debt to grow but need to be cautious to use it as a crutch to get by.
Reducing expenses will directly impact the profitability of your business. Keeping a firm grip on all costs will help you manage through this pause and will be further benefit the business as you expand and grow.