Do you spend enough time thinking about the costs on your P&L?
Posted: Thu 11th Oct 2018
Small business owners are used to examining profit and loss (P&L) accounts. It's a fundamental way of tracking the profitability of a product or service. But do you spend enough time on reducing the costs? Chris Goodfellow shares some tips.
The P&L shows a company's revenue and expenses. It's easy for the day-to-day focus to be on sales. But you need to pay relentless attention to the cost of sales and overheads, which reduce profitability. We have collated a number of useful ways to reduce these costs.
This article is sponsored by Soldo, a solution to simplify the entire business expense cycle.
Reducing small business office costs
The risk and expense of office space mean it's important place to start. Office space is a major cost. Rent, business rates, equipment and maintenance are relatively predictable while income fluctuates.
There's been a massive increase in the availability of flexible office space. Traditional brands like Regus are being challenged by startups like WeWork, Desklodge and The Office Group. The competition is great for small businesses. You might be able to get a cheaper and more flexible deal than traditional office leases.
Think about possible partners that could sublet factory, office or retail space. Sharing can be a cost-effective and low-risk way to take advantage of the spare capacity a larger company has. Incubators are an option too.
The benefits of remote working
Remote working provides a huge cost saving. Flexible working has become more popular as employees seek a better work-life balance and low-cost connectivity tools became available. It could save you money and provide a perk for employees.
If a remote worker is self-employed or running their own limited company they will likely cover equipment costs.
You don't have to pay tax on equipment given to an employee who works from home if it's only used for business purposes or private use is insignificant. HMRC has comprehensive guidance on homeworking expenses for employees.
Try to reduce regular payments
Advertising and software subscriptions add up. It's important to take stock of everything a business is paying out, particularly if there are multiple employees that can sign up for new services.
It's worth taking auditing what subscriptions and retainers you're paying for. Think about negotiating better rates, paying annually rather than monthly, and cancelling anything that's not used.
Lead by example: cutting small business expenses
Having an expenses policy is important. But leading by example can be powerful too. It's important to take the same approach as your employees and not be frivolous. There's nothing more inspiring than a frugal company owner who's in the trenches fighting for success with the staff.
That doesn't mean you should scrimp on important client entertainment or staff costs. It's about knowing what's creating value and developing a culture that strives for profitability.
If you can't measure it, you can't improve it
The age-old business adage is crucial when it comes to cutting costs. So many business conversations relate to sales performance. Costs are often the remit of a few key members of staff. Sales people are normally incentivised on revenue too, potentially reducing the focus on profitability.
It's important salespeople understand the profitability of different products and the costs associated with them, particularly if they're selling bespoke services. Financial training, transparency and refining incentive schemes can help.
Make sure the management team has a strong grasp of the company's costs across the different departments. Create a structure for monitoring this spending, which could include regular meetings and reporting procedures. This helps ensure the team is focused on costs as well as sales.
Soldo lets small businesses set up smart, pre-paid cards making it easier to allocate funds and fix limits. On-screen dashboards allow you to monitor expenses at a glance, making it easy to track these costs.
This isn't just about empowering your employees. Business owners can reduce the risk of overspending and the cost of missing receipts, and ensure leftover travel costs are returned to the business. The technology helps take care of the all-important operating expenses on the P&L.
Related content:
You might also like…
