When Should You Start Cutting Expenses

April 13, 2020

Every business needs financial goals, and not just related to the company bank account. In the long run, managers and owners alike should track monthly bills and compare them with incoming revenue. Such actions can save you money. Sometimes, however, monthly expenses become too costly in relation to revenue. While you obviously aren’t paying a cable bill at a workplace, other times you have to know when you should start cutting expenses.

When You Are Running At A Loss

This is the first question: are you turning a net profit? Do you know how to calculate your profits for a quarter, year, or longer period of time? If you don’t, then you need to start. Otherwise, you could run end up losing money and running out of it. The minute that you run out of cash, you are out of business.

 

Have your income statements ready for every designated time period. That means organizing your expenses — fixed and variable costs respectively– and subtracting them from your revenue for the quarter. Also, deduct taxes as well for the time period. Then you can figure out if you can literally afford your business or the supplies involved.

When Employees And Projects Aren’t Delivering Value

We believe that every business needs to have budgets, for either managers or their departments. If you don’t have a budget, then you don’t know if your company can afford a certain product or service. Then you run the risk of running out of cash.

 

The same budgets apply for employees and projects. Calculate how much value that certain individuals have, especially when you compare their work quality to that from outsourcers. The world has changed so that outsourcing contractors can deliver the same amount of value that an in-house person can.

Does every project need to be profitable in the short-term? Not necessarily if they provide long-term value. Consider how in the tech industry that owners need to constantly invest in upgrades and advances. They may not see the benefits for years down the line. People may want the newest tech today, but it needs to be ready for tomorrow.

When A Credit Card Bill Or Other Expenses Have No Benefits

One reason that businesses may use a credit card to pay for expenses is to build-up credit for larger loans. That way, in the case of purchasing assets, they can borrow and repay loans effectively. Managers can also receive benefits such as cash back or airline miles for the firm. These benefits need to go into the business to optimize their value.

Cut legacy-era credit cards if their benefits no longer serve you. If your owners and managers do not travel to conferences and trade shows, then cancel the cards that provide miles with certain airlines.

The same goes for certain workplace benefits. Evaluate if you and employees use certain perks, and avoid ones that are obvious wastes. See if people will use carpool discounts or gym memberships. Compare prices on healthcare plans and prepare to negotiate with insurance.

Plan For The Long-Term With DeepSky

DeepSky can do more than pinpoint the expenses that you need to cut. We provide customized and streamlined accounting services at a reasonable price. Trust our FinancialTM Wingman program to help you find extra money.

Reach out to us today to get started. DeepSky is ready to calculate strategies for your monthly payments and how to leverage them.

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