Every business will encounter lots of expenses that basically mean you have to spend a lot of money. After all, you’ve got to spend money to make money! There’s no such thing as a business that operates for free, but many companies manage their expenses better than others. To ensure your business generates profits, you will need to make more money than you spend. A bit part of doing this will revolve around maximizing your sales figures. The more money you make, the easier it will be to see positive outcomes.
Having said that, lots of businesses struggle because they have an expenses bill that goes through the roof. Yes, you will have to pay for things to help your business run, but that doesn’t mean you can’t reduce your ongoing expenses. Spending too much money puts added pressure on your sales figures every single month. It could mean that you must maintain a level of sales throughout the year to generate a profit. For some businesses, the sales demands are simply too high and will never come to fruition. So, focus on tackling your expenses to release the pressure and make it easier for you to profit as a business.
The question is, what are the main expenses a business will face?
Moreover, how can you tackle them? Well, let’s take a look:
Rent or Mortgage
The highest expense for a business will be rent or mortgage costs. Loads of businesses will rent their physical location(s), meaning they have to pay rent every single month. This can be a four-figure bill each month, and it can go on for years and years. Effectively, you will never be able to get rid of your rental costs unless you purchase your business premises. In which case, you still have to pay mortgage costs every month instead! The same concept applies – monthly payments for many years – but the big difference is that you can eventually pay off your mortgage and no longer worry about the costs.
Still, what can be done to tackle these expenses?
For rental costs, one idea is to downsize your business premises. This will allow you to afford a cheaper place in the same area – it will just be much smaller. There is one tactic that will allow you to do this, but we’ll talk more about it later in this article. Another idea is to offer flexible working, meaning a proportion of your employees work from home. It will mean you don’t need as many people in the office every day, allowing you to get a smaller one. Or, to negate rental costs completely, think about permanently working from home. You run a remote business without a physical location – though you could get a virtual address to seem more professional.
As far as mortgage costs go, your first task is to find an affordable mortgage with an affordable repayment plan. After this, you could consider renting out areas of your premises to other businesses. Let’s say you buy an office building with two floors, but you only need one floor. Rent the other one to a local business, and they pay rent to you every month. This rent can then go towards your mortgage, meaning your business spends less of its own money. Of course, common tactics like remortgaging can also help you find a more affordable mortgage if the current one is too troublesome.
The second-highest business expense will be the cost of labor in your company. Essentially, this refers to how much money you spend on employing people to work for you. As such, a couple of things are involved in the overall costs:
- Employee wages
- Employee benefits
Employee wages will either be calculated per hour or per year. If your job employs people to work different shifts – meaning they might work different hours every month – then you pay them by the hour. In other cases, you give them a fixed yearly wage that’s divided up and paid every month. Then, you have the cost of all the benefits you provide your employees, which could include things like health insurance, free dental, paid holiday leave, and so on.
Now, it is possible to help you lower labor costs, but there’s a fine line to tread. You need to ensure you reduce the cost of labor without damaging your business or employees. How do you do this?
For one, don’t focus on the benefits at all. Your benefits program can help you retain staff, which reduces turnover rates and means you won’t waste money hiring new people every few months. Instead, think about ways to reduce your overall employee wage bill. One solution is to outsource a lot of your work. We touched upon an idea that could help you downsize your office in the previous section, and this is it. Outsourcing lets you reduce the number of employees on your payroll while still getting jobs done by seasoned professionals. It is much cheaper, and it makes sense in many situations. Many companies choose to outsource their customer service or marketing teams because it’s just a lot easier on the budget.
It’s never nice to think about letting employees go, but you have to do what’s best for your business. Think about it this way, your company can’t keep operating on its current budget with the high labor costs. So, they’ll be out of a job anyway if your business shuts down. Ideally, you should outsource from the very beginning to avoid instances where you have to let people go!
The next biggest business expense will be the cost of your equipment.
Okay, both of the previous business expenses will obviously vary in size depending on the business you run. Some businesses require more employees than others, while some demand larger premises. But, when it comes to your equipment, this is where the expenses can vary dramatically. Your typical office business will not have an equipment bill as high as a manufacturing company, for example. However, offices still need to pay for lots of different equipment – desks, chairs, PCs, printers, and various other pieces of equipment to carry out jobs.
So, regardless of what business you run, how can you tackle the equipment costs?
Primarily, you look towards two ideas. Firstly, you should try to find equipment that can perform multiple functions in one, meaning you don’t need to spend money on numerous things. For instance, a printer that also doubles up as a scanner and photocopier will help an office save money. Secondly, opt for used equipment instead of brand new stuff in some cases. Buying things that are slightly used can help you save an absolute fortune! As long as it still works well and will last for a few years, you have absolutely nothing to worry about.
In some cases, renting your equipment can also reduce the bill. This only works in situations when you don’t need to use a piece of equipment all the time. Look at construction companies, for example. There are various machines or big pieces of equipment you might not need on every job. So, rent it when you need it instead of spending a lot of money on something that collects dust for 80% of your time working.
Just like that, you’ve found ways to tackle the three main expenses your business will face. To summarize, these expenses are your rent/mortgage costs, labor costs, and the cost of equipment. Follow the advice given in each section to learn how to spend less money without having a negative impact on your business.