Are Business Expenses getting the Better of You? See Our Top 3 Cost-Cutting Solutions to Get Your Profits Back on Track.
Have you ever found yourself looking at your bank balance wondering where all your money has gone? You were confident you were making money but the Profit and Loss statement (P&L) tells you a whole different story… a BIG fat loss. You’re not alone if you’re nodding your head and thinking “Eeeek, that sounds just like me!”.
The reality is, running a trade business accumulates a lot of additional expenses, and you would be surprised how quickly they can creep up on you!
More often than not we have trade business owners coming to us and asking “where am I going wrong?”. That’s a great start… because the right question can lead to the right answer…
Years ago, we were in the same position with our trade business, so I made an appointment with my accountant to chat about our business numbers. What an interesting meeting it was…
We spent time discussing every line, in particular the lines that sit under the heading ‘Operating Expenses’. In the end my accountant set us a challenge… to cut my business overheads by 20%.
Sounds like a lot right?
I was stuck on how to do this. It wasn’t like I could just completely say NO to items that were on those P&L lines. So I posed the question to my team and together, we came up with a plan of action which I’m about to share with you. Want to hear it? Thought you might…. There were quite a few specific things we did, but here are our top 3 cost-cutting solutions.
1. Reduce stock and materials kept on hand MASSIVELY
Back in the day, we had a warehouse that stocked every material you could possibly ever need for our plumbing company. It certainly saved on the initial cost of the item by buying in bulk, and stock on hand meant my staff could easily complete jobs without making a trip to the suppliers.
So essentially I was saving time and money, right? Wrong.
The problem was, although the office was central to our work, it was costing money for the tradies to drive 30minutes to pick up stock from the warehouse when there was perhaps a supplier within a 15minute drive. To make matters worse, we didn’t actually know what stock we had, not to the finite detail. Which caused another issue. We didn’t want a Warehouse Supervisor simply to keep a hold of stock take.
We soon realised most of the materials we had on hand, we would never actually use. Most of it was collecting dust and wasting space and money! A bigger issue here is cash flow on the business when $XX amount of money is locked up in stock on the floor and not in your bank account.
So what did we do? Great question…
We made a materials list of stock we wanted to be on hand at all times (I’ll get back to this in a moment), and sold all our unnecessary stock back to our suppliers (this one depends on your relationship with your contact).
Not only did we cut costs through the unnecessary outlay of money in advance for bulk purchases on unused stock, we also helped the tradies be more efficient in their day by heading straight to the supplier (which was perhaps far closer than our office was) and hence included the driving time within the bill to the customer.
Interestingly the tradies were including travel time to collect materials going to the supplier, but never when they came to the office, which essentially was the same thing. Yes, this action raised a whole other issue we didn’t, at the time, realize was happening! What an insight!
2. Develop a material list for your work vehicle/s.
So, I mentioned a materials list of stock that we wanted on hand at all times.
In our process of reducing stock in the warehouse, we developed a 1page materials list and distributed it for each vehicle. This list included the quantity and brand of each item they are required to carry at all times. Once a week, we get each tradesman to go through the list and restock.
No more chrome tap-ware rolling around in the vehicle getting scratched up to a point of no return!
Plus it prevented the staff from purchasing items they did not require that will just sit in their truck going unused for months before they are found.
Absolute waste of money!
3. Negotiate a better rate with suppliers
To ensure we were getting ‘bang for our buck’ on our materials we took the time to make a spreadsheet that included all the key products we used, and requested price lists for every item from the suppliers we worked with.
A personal meeting was arranged with our contact for each supplier with the sole intent to negotiate better rates on materials we purchased.
You probably won’t believe me when I say that it worked. It certainly pays to understand how much materials you purchase every month on average and your relationship with your supplier contacts. Loyalty speaks volumes!
We were able to save a considerable amount of money on our materials bill.
Whilst it may seem daunting taking time off the tools to implement these things and only saving $200 here and $1,500 there, add this all up together and you could end up saving thousands! (even hundreds of thousands like it was in our case… I kid you not!).
We challenge you to sit down with your accountant and have a chat about where you can cut costs. You will be surprised about where you can trim the fat from your business.
Want to know more? This subject of MONEY is a critical one for the trade business owner, and one very close to our heart. In fact, there isn’t a week that goes by that Andy isn’t saying ‘you’ve got to know your numbers!’. Find out what we’re talking about and more at our live event The Future Tradie. CLICK HERE for more details.