Expenses such as wages, legal fees, rent and insurance add up as a business grows and can place significant strain on your bottom line. Reviewing costs regularly helps you minimise expenses and keep your business on the right track. According to Director and Trusted Financial Adviser Aaron Kane of EK Financial Group, there’s no one right answer but here are some tips to help.
Keep tabs on your costs
Cost reviews are important – it is quite easy for business expenses to rise during the year with little warning. If you are working hard and concentrating on new business, it can be easy to forget to keep track of your existing overheads.
I used to think that if money is flowing and you can pay bills and wages, then business must be great. More recently, I’ve learnt it’s necessary to take a step back once or twice a year to review net profit and expenses for any trends that suggest costs are getting out of control. If during this process you notice a pattern of rising automotive costs, for example, you may find you have a car that is costing too much to keep on the road.
Reviewing costs not only helps you manage cash flow, but can also free up money to spend on growing your business, upgrading computers for a more efficient working environment, rewarding staff with extra training and support or hiring additional employees.
Review at least twice a year
I like to review our business expenses twice a year – in December and before the end of financial year in June – and use our accounting/bookkeeping software to compare against the previous 12 months.
I like December because business often slows down a little, which provides more time to make adjustments for the next year. Reviewing in early to mid-June lets you compare your business expenses with your net profit before tax time. If your business is going to have an increase in net profit from the previous financial year, you may also have a bigger tax bill to deal with. If so, your accountant might be able to advise you on any expenses that you can maximise or pay in advance, such as super contributions. This can result in a greater deduction for your business and help lower your tax liability in the current financial year.
Stick to the budget
Our business moved offices recently. Before the move, we obtained a business loan to cover the costs of moving and fitting out the new space. However, our loan didn’t account for unforeseen costs such as extra legal fees.
I took two lessons from this exercise. The first is to set a budget for every major transformation project and go to special lengths to stick to it. The second is to give yourself room to manage costs you don’t anticipate initially. Given another chance at our move, I would have allowed an extra 10 per cent in costs on top of the loan for changes in design and construction.
Take every opportunity to rationalise
Times of change often present good opportunities to reassess how much your business spends and rationalise where possible. We now pay more on rent than we did, but the move was a perfect time to find a few more cost-effective ways of doing things in the office.
As part of the move, we invested in LED lights to save on power, as well as a voice over internet protocol (VoIP) phone system to save on call costs. When choosing the new office, we made sure we had extra space so we don’t have to move again if we grow very quickly. Within the business, we also revised KPIs and job descriptions to optimise employee productivity and make everyone more accountable for their work.
Shop around for utilities providers
It is often possible to get a better deal on your expenses by shopping around. Before the move, we hired an electricity broker to find the best deals in our area. This approach works across many types of providers and could help you save on bank fees, interest rates on loans and phone contracts, just to name a few.
As we found, it is possible to improve your bottom line without making drastic changes simply by taking the time to review costs regularly, searching for a better deal and making slight updates to your systems and processes, where possible.
Knowing how to balance the expenses of a major project such as moving office can help you find the best and most cost-effective outcome for your business.
Aaron Kane has more than a decade of experience working in the financial services industry as a financial planner and mortgage broker at EK Financial Group. He holds a Bachelor of Business in Financial Planning as well as a Diploma of Mortgage Broking, and is a member of the Association of Financial Advisers (AFA) and the Mortgage and Finance Association of Australia (MFAA) and the Million Dollar Round Table (MDRT). His areas of expertise include superannuation, insurance, gearing and margin lending, debt recycling, finance and home loans.