Decreasing your expenses to increase your profits
Every business owner is set on increasing their profits because the increased profits are a sign of a successful business, but it also means more money for the owner of the business. Most business owners think that the easiest and fastest way to increase their profits is to increase their sales; this is not always the case. Sure, you can increase your profits by increasing your sales, but you will have to work twice as hard to get your sales up and spend extra money to make it happen. Therefore, that leaves you with the option of decreasing your expenses to increase your profits.
In business, there are two types of costs: fixed and variable. Fixed costs are costs that do not change in relation to the amount of production or sales. Fixed costs can include but are not limited to insurance, rent, and utilities. Also with fixed costs, they can change over time, but when they do change the increase and decrease in the costs is not related to your production levels. Variable costs are costs that change depending on the activity of the business. A great example of a variable cost is inventory and raw materials. If you are in the retail industry, you have to keep inventory on hand and when your sales increase so does the amount of your inventory. The same holds true for raw materials, the more items that you are producing the more raw materials you are going to need.
However, even though this is easy to understand cutting your costs is not always as easy because you are going to have to look at your entire business to see where you can cut costs on various expenses, but when cutting the costs you are going to have to do it without affecting your business in general. Something else that you are going to want to keep in mind is that in some cases you are going to have to spend some money to save money. For example, you might need to upgrade some of your equipment to save on production costs.
Here are some of the more common areas in your business that you decreases expenses in to increase your profits.
Number one: Information technology
Many businesses spend a lot of money on computer maintenance and repair because they go to a professional computer shop to get it down, which can be a waste of money in many cases. By learning some basics about computers, you can lower your bill from computer technicians. Some things that you can do on your own are to install virus protection software, make sure your computers are upgraded (Windows provides automatic updates), and learn how to use system restore and backups in case of an emergency. By learning how to do the simpler things you are not going to have to call a computer technician every time your system has problems, you will only have to call them when you cannot fix it.
Number two: Transportation costs
Many companies that offer a service are spending a ton of money on transportation costs; even salespersons spend a ton of money on transportation costs. What you need to do is look at your service calls, your sales meetings to see where you can reduce time spent traveling, or where you can cut down on how much traveling is being done. For example, if your salesperson has two stops to make that are across town from each other, try scheduling them around other errands that need to be done in that direction. On the other hand, if you provide service calls try to do as much as you can from your office so you do not have to waste gas to go turn on a thermostat or light a pilot light. Cutting out these unnecessary trips or combining trips with other errands is a great way to reduce transportation costs.