How to Reduce Operating Expenses in Business

Cut costs

You can never have low enough overhead. Many entrepreneurs are always trying to figure out how to reduce operating expenses in business.

Let’s take a look at why you should reduce operating expenses in your business and what doing so can ultimately mean for a business owner like you.

1. Why Do You Want to Reduce Overhead?

With economic times being as unpredictable as they are, there are a number of reasons why you might want to keep your overhead as low as you possibly can.

Do any of these scenarios sound familiar?

  • Customer demand for your goods or services isn’t what it used to be – It could be that what you provide is seen as something of a luxury that people feel as though they can’t afford to use at the moment. Or perhaps there has been a perceived decline in your product’s quality.

Regardless of the reason, people aren’t buying in the amounts that they once did. This could lead you to trying to figure out how to reduce operating expenses in business, among other things.

  • Revenue is down across the board – This could be tied to the decreased demand or could be influenced by other factors like you being unfamiliar with what your competitors are doing.

Either way, decreased revenue could have you scrambling to figure out how to keep your head above water long enough to work out a way to get a strong cash flow going again.

  • Revenue isn’t being used efficiently – Do you often find your business is spending money in areas where it doesn’t need to be?

Wasteful spending is every bit as much a hindrance to growth in business finance as it is in personal finance, so it makes sense that you want to look at ways to keep that sort of a spending to an absolute minimum or simply eliminate it outright.

2. What You Need to Know Beforehand

What many business owners don’t realize in figuring out how to reduce operating expenses in business is that doing so can often carries risks. This makes the process of lowering your overhead more trouble than it’s worth and could potentially leave you worse off in the long run than you were when you first started.

Before you think about ways to reduce your company’s operating expenses, there are several worthwhile questions that you have to ask yourself.

Namely:

  • How will my customers be affected? – Everything that you do should ultimately benefit your customers in some way.  If the actions that you take in reducing your company’s operating costs could conceivably alienate the people to whom you provide your services, then your plans will definitely need to be reevaluated.
  • Will the quality of my products suffer? – Offering product that is inferior to what you used to provide cancels out anything that you achieved through reducing your overhead. If they don’t notice right away, your customers will notice the decline in time and take their business elsewhere.

You want to make sure that your offerings remain the same so that you can keep your customers happy.

  • Will it put me at a disadvantage? – You always want to be able to keep up with your competitors, so your strategy on how to reduce operating expenses in business should never undermine your competitive edge.

If lower overhead means fewer offerings, a reduced service area, fewer business hours or anything else that competitors could take advantage of, then you need to rework your business plan to lower your expenses without having to resort to any of those potentially harmful measures.

3. What You Can Do

Knowing what you do about how your business can be negatively affected by lowering your overhead, keep in mind that there are still several ways to go about continuing your business while remaining profitable.

The question of how to reduce operating expenses in business without being detrimental can be answered in some of the following ways:

  • Look at your employees – It makes sense that most consumers hold good customer service above anything else when considering where they will spend their money. That’s why you want to look at your employees as a way of reducing business costs.

How is that done, exactly?

Train your employees and keep them happy!

By providing a high level of training, your employees will know how to deal with certain situations and will be able to meet the needs of your customers.

Show your employees how important they are to the company’s mission and you’ll keep turnover, which can lead to high costs for your business, low.

  • Consider outsourcing some business functions – Every business relies on important services like information technology (IT) for communication purposes, and accounting for bookkeeping purposes.

In figuring out how to reduce operating expenses in business, one thing you could look at is outsourcing these important functions to professionals who specialize in these areas.

With respect to IT, outsourcing can save you money be lifting the burden of having to maintain, install, and update equipment and software, as well as having to devote time and resources to dealing with troubleshooting.

With respect to accounting, having a consultant carry out your company’s financial oversight will allow you to take advantage of expert bookkeeping that will be able to oversee financial record keeping much more efficiently than you might be able to were you to take care of it yourself.

Outsourcing both IT and accounting are textbook examples of how to reduce operating expenses in business because they allow you to get business critical services while avoiding payroll expenses and other taxes you would incur if you had these professionals as part of your regular staff.

  • Look at your production costs – How much is it costing you to provide your services to your customers?

You want to look at the materials that go into what you provide, as well as your relationship with the suppliers who provide you with those raw materials.

Are there alternatives that you can use in your production without affecting the quality? Do you have a strong enough relationship with your suppliers that you would be able to renegotiate the terms of your contract?

Many times, figuring out how to reduce operating expenses in business can be as simple as forming and maintaining strong business to business relationships with other companies.

Other times, it’s a matter of finding alternative ways to do something that you’re already doing.

  • Conserve energy – This may seem like a very basic premise, but take a look at how much good reducing your energy bill can do and you’ll see why it’s such a good idea.

By taking small steps like turning off devices when they aren’t in use, using lower wattage light bulbs, and generally conserving whenever the opportunity presents itself, you can see a dramatic reduction in one of your recurring bills.

These are just a few of the measures that you can take to keeping your company’s operating costs low. You just have to remember that when it comes to figuring out how to reduce operating expenses in business, you want to look for examples that might be unique to your industry on top of the examples illustrated here.

Keeping your overhead low without sacrificing quality of service or withdrawing the affections of long time customers will go a long way towards helping your bottom line.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

Check out our website at www.portalcfo.com for more tips on how to grow your business profitably.

You may also be interested in Learning How to Reduce Operational Risk.

How to Use EBITDA to Value a Business

EBITDA to Value a Business

If you’re an entrepreneur who wants to know how to use EBITDA to value a business, then you should know all about this calculation and how it can help you strengthen your business in the long run.

When it comes down to it, EBITDA is designed to do three main things:

  1. Provide a rough estimate of the company’s cash flow from operations
  2. Provide a means by which the worth of different companies can be compared
  3. Illustrate how much money is available to the company in order to help eliminate debt

EBITDA, which stands for earnings before interest, taxes, depreciation and amortization, is something that companies in all kinds of sectors rely on in order to accurately gauge their strength as it relates to profitability.

It’s with that in mind that you want to approach your business practices with the mentality that you’ll be selling your company one day.

If you approach them in that way, you’ll be able to use EBITDA to not just know how much your business is worth, but determine what actions you can take to make the business a more attractive prospect in the future.

Take a Look at Your Company’s Equipment

When you want to figure out how to use EBITDA to value a business, one place to typically start is the equipment that the company uses in order to carry out is operations.

Does your company mostly have standard equipment?

If so, how old is it?

The age and condition of the machines you use to get work done can have some bearing on your company’s overall worth.

Likewise, if you have specialty equipment that not everyone in your field possesses, this can have a positive effect on your EBITDA and the overall worth of your company at the end of the day.

Your Reputation is Important

Another important factor in determining how to use EBITDA to value a business can rest in how your business is perceived.

Do you have a large number of repeat customers?

Is a lot of the business that you do the result of positive word of mouth?

While your services and offerings are important, the way that the consumer perceives you is an all-important part of determining your company’s worth.

If you have a large enough customer base that relies on you time and again, that could easily increase how much your business is worth. The buyer will be getting those repeat customers along with your company’s name and equipment.

Location is Everything

Part of a business valuation may be an assessment about where your offices are located. When thinking about how to use EBITDA to value a business, look at your location and how it can affect your revenue.

Are there other companies similar to your own nearby? If so, who has been there longer?

Are you close to your main customer base?

Are you in an area of highly sought after business real estate (e.g. a downtown vs a rural location)?

Much like buying a house, the location of your business can play a large role in how much a buyer is willing to spend. Short of packing up and moving, there’s little you can do about your location but knowing that it has an effect on your company’s worth can help dictate how you’ll proceed.

It All Comes Together In the End

Each of these factors, as well as several others, are all important to determining the worth of your company before you decide to sell it because each of these factors can outwardly affect your earnings.

Knowing what you now know about how to use EBITDA to value a business, you can make adjustments so that your company is worth more in the eyes of potential buyers.

Whatever you do to improve your practices, it’s important to keep these things up as the years pass. Not only that, but you should also work to reduce risks associated with your business because doing so could mean that any buyers that you meet will be more eager to jump in when the time comes.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more information on business analysis, business planning, and ways to grow your small business profitably, please check out our website www.portalcfo.com.  Foll

 

How to Reduce Business Overhead: Tips for Cutting Costs Without Losing Customers

cost cutting tips for your business

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How to reduce business overhead is something that many entrepreneurs like you thinks about when it comes to running a company.

And with good reason.

How to reduce business overhead is a question that’s been on the minds on entrepreneurs like you since people first started running their own businesses. It also becomes something that more and more people ask when economic times are less than ideal.

With much of the world still recovering from a time of economic turmoil, it’s an especially important question for owners of small businesses.

How High Overhead Hurts You

High overhead means that you spend more on business upkeep than you do on development and growth. Profit margins might be razor thin in the cases of many smaller businesses, meaning that every dollar has to count towards something meaningful.

But what are you supposed to do?

Besides eating into your revenue, rising overhead can cause you to raise the costs of your products and services to keep up with the increase in operating expenses. It goes without saying that if you raise your costs then your customers may jump ship and go with what your competitors offer instead.

Rising costs go hand in hand with the expansion of your business; that much is inevitable. As your company grows over time, you’ll undoubtedly have to hire more employees in order to keep up with customer demand.

Beyond that you may need to do things like order supplies in greater quantities, open additional branches, increase marketing, and move offices in when you have more employees.

But it doesn’t have to be that way.

Four Things You Can Do to Cut Costs and Stay Ahead

There are several things that you can do to minimize the costs your company takes on and enjoy the benefits of the increased revenue as a result.

  1. First, you have to know what your operating costs are – When it comes to figuring out how to reduce business overhead, it’s important that you know exactly what you’re up against.Take a look at your current costs with the most up-to-date numbers that you can acquire. This will give you an accurate assessment about what you’re spending to keep things moving behind the scenes so that the needs of your customers are met.You can also go a step further and get the same information from previous years. Chances are that comparing the current information with past information will show a trend in costs rising over time.If the changes that you see are drastic, then you know immediately where you can begin making changes as far as how to reduce business overheads are concerned.
  2. You can negotiate with other companies – It doesn’t matter what kind of business you run, you likely have to use some kind of service to process payments. Likewise, you need a company that provides you with supplies.If you have strong business to business relationships with these other entities, then it could be to your advantage to try and lower your costs by negotiating terms with them.The competitive nature of these industries means that they might be willing to work with you so that you reach a cost effective solution and they retain you as a customer.
  3. You can outsource some services to specialists – One way to cut costs is to let professionals handle certain tasks that your company needs.In finding methods on how to reduce business overhead, some companies have turned to outsourcing important functions like bookkeeping and information technology maintenance and support.Companies that provide these services excel at them. By having them do it, you can save yourself time and money so that your own company can do what it does best.
  4. Evaluate your true need for an office space – One mistake that you can easily make is buying more of an office space than you truly need to run your company.Take a look at how much space is available to you versus how many employees your company has. There’s a chance that they could occupy a smaller space without much of a change in the way that your company operates.

Beyond that, another way that you could be reducing business costs is by promoting a work environment where employees can use a virtual office setup if they’re so inclined.When you want to figure out how to reduce business overheads, consider having an arrangement where employees can work from their own homes.This provision can promote productivity by allowing your employees to work in a place where they are most comfortable, when they are most comfortable doing so.When this happens, you not only benefit from better work output but you may cut utility costs and have a reduced need for furniture and equipment at your office

Cutting Costs Should Never Come at the Expense of Alienating Your Customers

In the end, the question of how to reduce business overheads can extend much further than what’s brought up in this post. The truth of the matter is that there are countless things that entrepreneurs like you can do in order to minimize operating expenses. Whatever you decided to do, however, it’s important to remember that you always have to weight the risks of cutting costs against the rewards for doing so.

When figuring out how to reduce business overheads, you should do what you can reasonably get away with. Your cost cutting measures should never negatively impact the way you serve your customers or your ability to meet their demands. Keep costs low and customer satisfaction high, and your company’s name could easily be on everyone’s lips before you know it.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more interesting topics to help you successfully manage the challenges of growing your business profitably, please search our blog at our website www.portalcfo.com.

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International Business Growth Strategies

international business grwoth strategies

As an entrepreneur, you’ve probably considered establishing a business in an overseas market and, as a result, have wondered what some viable international business growth strategies are.  It’s no secret that, figuratively speaking, the world is getting smaller.

As communications technology continues to improve, developing nations undergo the transformation necessary to come into their own on the world stage. The opportunity for entrepreneurs like you to tap into these markets is there if you know what to do.

You should know that international markets are different from their domestic counterparts by their very natures for a number of different reasons.  There are advantages as well as disadvantages associated with these differences and it pays to know about them before you commit resources from your business to establishing a presence in a foreign market.

Let’s take a look at some of the unique aspects related to doing business internationally and you’ll get a good idea for what you can do to make sure that your company is successful in its overseas endeavors.

  • The stability of the country – This mainly applies to countries that are still developing. It isn’t uncommon for these countries to experience political instability that could threaten your ability to conduct business within its borders. When coming up with a plan, you want to do thorough research on the country that you intend to carry out operations in and make sure that the risk of doing so is low enough that you’ll be able to conduct business there successfully.
  • The local laws related to doing business – Before you started your company in the US, you knew all of the laws related to doing so, right?

It makes sense then, that part of your international business growth strategies would involved being well-versed on the laws of the country that you intend to do business in.

From reporting standards, to hours that employees work, to what you are and aren’t allowed to sell, the standards are likely going to be different from what you’re used to. Even if the difference is trivial, it’s worth knowing about so that your company works within the law.

  • Currency rates – This should be a huge factor in your international business growth strategies, regardless of what your industry is.

You need to keep an eye on currency rates because no two currencies are exactly alike and that’s an important thing to keep in mind when dealing with international customers.  By keeping these things in mind, you’ll be well on your way to establishing a successful business on foreign soil. After you consider these factors, several truths that go with business success in the US can apply, at least to some degree, to foreign markets.

  • Make sure that your processes are as efficient as possible – When meeting the demands of your customers, your service should be as quick and efficient there as it would be here in the US.

Take the time to establish relationships with suppliers and vendors to make sure that your products will also get into the hands of your customers as quickly as possible and you will easily establish a reputation as a company that puts people first.

This concept can easily apply to the concept of customer service as well. You want to settle any disputes that might arise quickly and fairly. Turn a situation around and win a customer back after something has gone wrong and you will have no problem with establishing trust with other people who want to use your company’s services.

  • Be versatile – No matter where you are in the world, the simple fact that everyone has different needs applies. This is something you need to consider when devising international business growth strategies.

Do some market research to find out what people in the country that you are targeting want. Your company may be able to meet the needs of several demographics in the area. If it can’t, you may be able to develop a product or service that can.

By looking into who you are serving and what they need, you may very well find an untapped niche that be cornered early. Your company’s name could then become synonymous with a particular offering as a result.

  • Establish partnerships – In order for your business plan to be viable, your international business growth strategies should involve a partnership with someone who already has a strong presence in the country where you’ll be working.

Try to find a business whose offerings can be supplemented by your own, as you want to establish a bond that can be mutually beneficial without the eventuality of a competition emerging between your business and your partner’s.  Once you work with a household name long enough, your product can eventually branch off on its own and you’ll already have loyal customers who can fuel your continued success in your new market.

When it comes to international business growth strategies and making a name for yourself in other countries, the endeavor can be a mixed bag of familiarity and uncertainty.  Wherever you decide to go in order to expand your business, you want to be sure that the venture is something that is viable and, beyond that, you want to take into account things like local customs, potential language barriers, and taxes before you fully commit.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more valuable articles to help you successfully manage the challenges of growing your business profitably, please search our blog at our website www.portalcfo.com.

How to Reduce Business Debt

how to reduce business debt for service business owners

Once you’ve got your business up and running profitably, you probably want to know all about how to reduce business debt, right?

Depending on the kind of debt that it is, it could be eating into your cash flow and keeping you from expanding the way that you want to. It makes perfect sense that you want to reduce your business debt as quickly as possible.  Keep in mind that in some cases, there is debt that is “good” for your business.  We will discuss “good” business debt in a future post.

In many cases debt is inevitable, especially during the earliest phases of a company’s development.

Fortunately, that debt doesn’t have be something that constantly hangs over your head and keeps your enterprise from being the best that it can be.

Let’s take a look at some of the different strategies that you can employ to reduce your company’s debt.  You’ll see how you can gain peace of mind through business debt reduction.

  • Work with your suppliers – In figuring out how to reduce business debt, one of the first places that you should look should be the suppliers from whom you buy raw materials

If you happen to be behind on supplier payments, you want to work out a payment plan with your suppliers that will help you to get current with them. Your company most likely depends on what your suppliers sell you, so you want to settle any outstanding debts with them first and foremost. Doing so will make sure that your relationship stays strong and that you continue receiving the items you need to provide your own goods and services.

  • Sell, sell, sell – In order to reduce debt, you need to increase revenue and profits That much is obvious. There are several ways to go about doing that; the most straightforward of which is to increase your sales volume and move more product and services than you have in the past.

Offer incentives to your customers to get them to buy more, as long as its viable for you to do so. As you manage to sell more products, you can use the additional profit to reduce your company’s debt.

  • Restructure – When many business owners try to figure out how to reduce business debt, one thing they often fail to consider is how much restructuring might help them reduce debt.

From selling surplus inventory and unused equipment, to cutting back on excess around the business, there are a several small, but significant things that you can do to get closer to your goal of reducing your company’s debt.

  • Reduce Your Operating Expenses – This could fall in line with restructuring, or be its own strategy entirely.

Think about the things that always cost your money around your business.

You have your utilities like electricity and water, as well as services like your internet connection. Furthermore, you have the office itself, which you most likely pay to rent. While it’s true that these things are the cost of business, it doesn’t mean that there aren’t ways to reduce them. If it’s realistic for you to do so, consider moving to a smaller office or switching service providers for more cost-effective solutions. The money that you save could be reallocated to reducing your debt.

You could consider alternative scheduling for your employees. If you encourage them to spend time working from home on their own schedules for part of the time, you can ease a transition to a different office.  Consequently, you may not need to purchase, power, support, and maintain as much equipment around your office.

  • Look over your taxes – Speak with your accountant, CFO, or any other financial expert that you employ and they can help you figure out if you can reduce your taxes.

One way that they might do this is by going over what you pay in taxes and making sure that you are counting all of your eligible deductions throughout the year. It pays to do this exercise often because tax laws are always changing and new tax breaks for businesses are always popping up. You want to make sure that your annual tax bill is always as low as it can be, according to the rules.

Keeping your debt under control is one of the most important things that you can do as a business owner,. Therefore, you want to make sure that you’re taking every step that you can to pay back creditors and keep outstanding debt balances from impacting your company’s bottom line.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more valuable articles to help you successfully manage the challenges of growing your business profitably, please search our blog at our website www.portalcfo.com.

Small Business Budgeting Strategies: Making Your Money Work for You

Small Business Budgeting for your service business
4 small business budgeting strategies

Small business budgeting strategies are an important part of making your money work for you.  With everything that you pour into your business, the last thing you want to see happen is for it to face some kind of trouble or, even worse, failure due to financial mismanagement. When it comes to your business, you already know everything that there is to know about the product and service that you offer, right?

No matter what kind of question a business partner, customer, supplier, or lender has about what your company does and how it can improve lives, you’ll be able to answer their questions without a second thought. Some of those same people who ask you questions about what it is that your company does may have questions about your company’s finances and expenditures too.

With the right budget and careful financial oversight applied to your business practices, you’ll not only be able to answer those questions, but you’ll be painting a clear roadmap for where you want to be and how you’ll eventually get there.

Let’s take a look at 4 Small Business Budgeting Strategies and you’ll see how crucial a component it is to your company’s overall success.

1. Look at Your Fixed Expenses

The first expenses you should take a look at as part of your small business budgeting strategies are those that occur every month without fail and stay roughly the same each billing cycle. Think about common operating expenses like the rent for your office space, your payroll, and the taxes that you pay.

These should be among the first things that you include in your budget, because you know you’ll always have to pay costs associated with them. After including them, you can work other expenses into your budget as part of your small business budgeting strategies. They can be shaped around your fixed expenses so that there are fewer potential surprises.

Assuming that these costs remain fairly constant, you can plan for them several months at a time so that you’ll know what you pay immediately as well as what you’ll be paying for them in the long term.

2. Pick Out Costs That Can Dramatically Change From Month to Month

As part of your small business budgeting strategies, you also need to be aware of the costs that can change depending on factors like how much business you do.

Look at:

  • Your inventory
  • How many deliveries you’ll have to take on every month
  • The cost of the materials you need to provide your products or services
  • Similar things of that nature

You don’t have as much control over these as you do your fixed costs and you should plan your company’s budget around that fact accordingly. But here are some ways to reduce operating expenses in your business.

If a product or service that you offer corresponds with a particular time of the year more so than it does with others, then you’ll see an uptick in customers during that time. With that being the case, you need to consider inevitabilities like increasing employee payroll to make sure you have enough coverage, taking on extra deliveries to make sure supply meets demand, and the possibility of extending the hours of your service.

Conversely, your business could be in an industry that experiences regular “slow” periods, such as construction in the winter months. When that happens, costs associated with running your business may be dramatically lower every month.

These are just some of the considerations that you have to keep in mind, and they certainly don’t apply to every business owner. Showing some flexibility in your small business budgeting strategies will guarantee that you’ll be prepared for sudden shifts in activity that could affect your company one way or the other.

3. Examine Time Tested Patterns and Trends

Research is an essential part of business planning and things are no different when it comes to figuring out a budget. One thing you may want to do is take a look at information like what other businesses in your area have experienced as far as traffic from customers and money coming in are concerned.

You can use past precedents to guide your actions in setting up your own small business budgeting strategies and further refine your expectations by considering where your company is located.  You can also consider the times that you operate compared to your competitors. Using these methods, you’ll be able to estimate what you’ll see in revenue and plan subsequent actions related to your business accordingly.

4. It Pays to Stay On Top of Your Budget

Once you’ve come up with a viable strategy that can put the minds of investors and business partners at ease, you want to make sure that your company’s operations follow that roadmap closely enough that you’ll see the kind of success that was laid out in the pages of your business plan.

When you come up with good small business budgeting strategies, keep a close eye on the developments that follow the plan being put into place. Over time, you may experience instances where the costs that you worked into your business plan may not be ideal for the situation at hand. When that proves to be the case, you can make several adjustments to better suit the circumstances:

  • Review your practices – With a small business, you can hardly afford to waste anything. If you find that money is being spent needlessly, then a review of your budget will allow you to make the adjustments necessary to guarantee that every dollar is put to work.

Conversely, you may find out that you have a surplus that could be put to use in some area of the business that needs additional attention. Make it a habit to review your budget every month. With the pace at which the world of business moves, you may need to make periodic changes to ensure that you’ll always come out ahead.

  • Keep business relationships strong – When running your company, the relationship that you share with other businesses can have a much larger influence on your small business budgeting strategies than you might think.

Whether we’re talking about suppliers who provide you with raw materials, or banks that extend loans to your company, you want to make sure that the terms you share with these entities are the best that they can be. Doing so will ensure that you always have someone that you can rely on to deliver an important part of what keeps your company going.

  • Look at ways to lower costs – This can be done in a number of ways. If you want some additional breathing room then you can look at things like your office space and the equipment that you use. Read 3 tips for growing your business on a budget for more helpful info.

Can you find a space that’s just as good for a small amount of money? Is there any cheaper equipment out there that can do the job just as well as what you currently have? Besides answering these simple questions, you shouldn’t be afraid to shop around for the suppliers who provide you with the raw materials that you need. Doing so could save enough revenue over the long term that you can redirect the money to more productive purposes.

When it comes down to it, your company needs budgeting in order to forecast its revenue streams and plan the appropriate steps to positive growth and longevity in your sector. Regardless of what your company does, it helps to know where you’re going and how you’re going to get there. With these small business budgeting strategies, you can shape the kind of business plan that has helped countless companies like yours see success and become leaders in their fields.

Remember, running a business successfully does not need to be complicated.  Keep it simple!

For more valuable articles to help you successfully manage the challenges of growing your business profitably, please search our blog at our website www.portalcfo.com.