5 Practical Ways to Cut Costs and Improve Profit Margins

A business can exist in three financial stages – the business can be operating at a loss, it might be breaking even, and it might be booking profits sustainably. The ideal financial state for a business is to be profitable consistently and sustainably, that’s the only way to ensure that the business will survive and thrive. However, many businesses are only barely making a profit because operational expenses often eat too deeply into their margins.

Financial analysis

This post provides insight into five ways you can cut costs to improve your margins.

Rethink your office space needs

You can start cutting your business expenses by reviewing your office space needs to know how much of an office space you really need. Many businesses buy/lease an oversized place in the hopes that they’ll grow into the remaining space via expansion. However, you are paying for every inch of square foot in your office and it doesn’t make much financial sense to pay for space you don’t need.

You may want to consider renegotiating your lease or moving to a cheaper part of town. You may also want to consider subleasing a part of your office space in order to reduce the rent. If you are still in startup phase, you may want to consider working out of a co-working space instead of leasing an office.

Renegotiate with vendors

Businesses tend to have vendors who supply them with raw materials, stock, and other materials that they need to stay in business. You should not hesitate to set up a meeting with longtime vendors to check if they could review payment terms or give you discounts when they deliver. You may also want to find other small businesses or associates who use the same supplies that you buy to find ways to pool funds to make bulk purchase that might be eligible for discounts.

Utility bills don’t have to be exorbitant

Many business owners are oblivious to how much money they spend on utilities each month probably because they are used to paying such bills at home. However, in most cases you’ll be paying utility bills on usage that doesn’t add to the operations/productions of your business. For instance, leaving the light on overnight when the office is empty means that you’ll be paying for wasted energy.

You should encourage your employees to turn off lights and other equipment when they are not being used. You may also want to switch to energy efficient lighting and equipment for long-term savings.

Don’t skimp on insurance

When cutting expenses, many small business owners are often tempted to stay in the grey area by reducing their insurance coverage to the barest minimum. It is easy to rationalize that insurance is a needless waste of fund in the hopes that you’ll manage to swing the odds of an incident in your favor.

Auto insurance often costs some money if you have official cars, staff bus, or a delivery van used for your business operations. However, you can find cheap car insurance for your business needs by comparing the offerings from different firms.

Only buy office supplies you need

In personal finances, we know that it is important to differentiate between wants and needs – the same is applicable to business finances. Some of the supplies on which you spend money are wants and not needs.

You probably don’t need subscriptions to 20 magazines and cable TV for the reception/lounge. The TV in the reception can be a great place to play video ads of your products and services to people who come into your office – instead of paying a subscription service to TV stations that nobody has the time to watch.


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