By Business Journals Leadership Trust is an invite-only network of influential business leaders, executives and entrepreneurs in your community. Original article posted here.
If your business or organization isn’t bringing in enough revenue to cover your expenses, you’ll need to cut back on costs. However, a scattershot approach driven by pressing need is likely to lead to poor decisions. It’s wise to have a prioritized system in place in the event you need to reduce your business costs.
To help you start the process of “trimming the fat,” 14 members of Business Journals Leadership Trust share the first steps you should take in identifying and eliminating unnecessary expenses.
1. Review your financial statements from the last 12 months.
I believe the first step is a comprehensive review of the financial statements (profit and loss) going back four quarters. Compare all general ledger expense accounts as a percentage to the best in class for your particular industry. This helps identify those areas of the business where expenses need to be reduced and often uncovers other staff and operational problems. – Alexander Freund, 4IT
2. Invest in lean processes and zero-based budgeting.
Trimming the “fat” is, indeed, a good first step. Most business owners can readily and quickly identify it or at least identify the first layer, which is typically in perks. But bigger and more lasting improvements come from investing in “lean process” exercises and zero-based budgeting, which are significant commitments and by definition cannot possibly be scattershot. – Michael Sluka, B2B CFO Partners
3. Audit your subscriptions.
As a small-business owner, it’s necessary to source many services from other companies, including payroll, security and technology. One of the quickest ways to trim the fat is to double-check subscriptions and packages to ensure you aren’t paying for more than you’re using. – Tashina Bailey, The Bar Method Portland
4. Evaluate your general ledger.
The best thing to do is to ground stories with facts by looking at your general ledger. There you can see all of the expenses in your business properly categorized by type and vendor. It is amazing how much fat you can trim by getting rid of services that you no longer use but weren’t aware of. They can be small enough to go unnoticed but in aggregate really add up. – Russell Benaroya, Stride
5. Start with your company’s goals and priorities.
Leadership must first clearly identify the organization’s goals and priorities. Once these are agreed upon, it’s easier to distinguish between necessary and unnecessary (or nice-to-have) expenses. Fiscally responsible organizations measure each expenditure against how it will help the organization meet its goals, from infrastructure to product development to employee needs and everything in between. – Daniel Serfaty, Aptima, Inc.
6. Begin with leadership.
Any effective cost-reduction program must start with leadership and unnecessary expense categories so that the remainder of the organization can see that the first costs reduced were those that impacted leadership. To be effective, budgeting should be a process of consistently evaluating whether costs are necessary or unnecessary. – Scott Barnes, Barnes & Company
7. Comb through your recurring expenses.
Just as with home finance, I’ve found the easiest place to start is with recurring credit card charges. It’s natural for these to accumulate over time—subscriptions are never canceled or people forget why they purchased a tool in the first place. If you want to have a great feeling, just tear up your cards and start over. Then only opt back into those services that help you. – Scott Baradell, Idea Grove
8. Study the data to identify ROI.
The first step is identifying ROI with projects and processes. The data needs to be the driver. Often there are pet projects that may be appealing but just don’t have the numbers to back up continuing them. – Rachel Namoff, Arapaho Asset Management
9. Prioritize what makes you profitable.
Have a clear understanding of what makes your business tick. Know what makes your company profitable, and know what expenses are essential for long-term growth. Once you understand these components it becomes a lot easier to prioritize what you really need now and what can go. – Samir Mokashi, Code Unlimited LLC
10. Cut what doesn’t yield results.
Identify priorities and see where your top results are coming from. If you are not reaching your goals or seeing results from a specific service, it’s okay to reevaluate. Start by redesigning the activities that bring the lowest value to you and won’t have much of an impact on your other departments. – Scott Scully, Abstrakt Marketing Group
11. Conduct a productivity review.
Regular productivity reviews create accountability and help you understand whether what you’re spending on software, a service or a person—time, money, mental capacity—is really worth it. The easiest way to do this is to take a quick look at everything you’re spending time and money on and ask yourself: “Would I invest in this tool or hire this person again today?” If the answer is no, cut it ASAP. – Madeleine Nguyen, Talentdrop
12. Carefully review your monthly budget versus actual profit and loss.
Our team’s first step was to examine our budget and actual-to-date P&L. We then looked at comps over the past few years to see where trends occurred and identified if those were “normal” business or unexpected fluctuations. We also did a laser-focused review of our monthly budget and very quickly identified ways to reduce our expenses, including reductions in office rental, mileage and salaries. – Liz Wooten-Reschke, Connect For More
13. Create a strategic growth plan.
It is very important to create a strategic growth plan. Regularly focus on outcomes and goals so you don’t get into the excessive hiring or firing patterns that you sometimes see happening. – Sekhar Prabhakar, CEdge Software Consultants
14. Focus on investing wisely instead of slashing costs.
Most companies that undertake cost-cutting measures cut the wrong things. You can’t slash your way to profitability, so don’t cut too deep. Continue to invest in the things that drive revenue, and don’t starve your organization of the resources necessary to ensure continued sales growth and profitability. – Jonathan Keyser, Keyser
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