Saturday, July 12, 2008

Minimizing expenses

In a previous post I talked about how more focus needed to be placed on generating a business profit. So what’s the first step you can take? Well, if Profit = Income – Expense you can either increase your Income or decrease your Expenses. So which do you think is easier?

If you picked reducing your expenses then you’d  be right. Why? Simply put, expenses are something that you already control. Finding additional income means you have to obtain something that is currently outside your control. So, the easiest step you can probably take to increasing the profitability of your business is to examine your expenses.

As a business grows, like most western human beings, it puts on additional weight and doesn’t do enough exercise. Result? These additional expenses (or kilos) tend to become further ingrained and with each passing year become hard and harder to shift. Like improving your fitness, reducing expenses in your business requires discipline.

You should be regularly examining all your business expenses to determine whether (a.) they are still necessary and (b.) if there are alternate and cheaper options. I once heard a good saying about expenses, if you can’t see how an additional expense is going to generate you more income then you shouldn’t incur that expense. A good example is the recent changes I made to my broadband connections. I sat down and determined that I really didn’t need every connection I had and for those that I did I found the best deal I could. After making the changes I couldn’t be happier and have also saved a packet.

I’m not saying that this process will be easy but it is like improving your fitness, you gotta do the hard yards to reap the benefits. Sure, there may be some pain when you no longer have a treat or go through the process of switching accounts to a cheaper provider but your goal is the longer term improvement of PROFIT. If you aren’t committed to that then don’t fool yourself that you are. That’s why I said in my previous post that you need to be committed to having a business not a hobby. If you want a hobby there are no problems with that, just don’t fool yourself into think it is a business. Much like walking down a road, walk on the left it is safe, walk on the right side it is also safe but walk down the middle and sooner or later you’ll get squished! You gotta choose one side or the other.

As the cliche goes – the first million is always the hardest but each one after that becomes easier. The same is also true about fitness, the fitter you are the easier it is to maintain. Why? The most simple answer is probably that to achieve this stage (a million dollars or being fit) you have already achieved a new mental discipline that makes the whole process easier. As they say, it is all in your mind.

Therefore, if you want to make greater business profits, start first by looking at how you can minimize your expenses. With that done, you can then turn your attention to increasing your income.