Scratching your head thinking how can my company be more profitable? You’re not alone. Most owners face this constant challenge. Many ideas point to increasing revenues, which are good on their own merits, but when those tactics have all been deployed it’s time to turn to reducing costs. Reducing operational costs is never fun but simple oversight may prove fruitful. One simple approach is reviewing expenses by vendor at least quarterly. Seems too easy...the best solutions usually are.
What to look for
Surprisingly enough, by generating a report that summarizes expenses by vendor can highlight several things quite quickly: silent price increases, special add-on fees, discounts not utilized, out of scope work performed to name a few. The summary should include if a vendor is new, # of months with the vendor, total expenses quarter to date and year to date along with some comparative analysis such as average monthly expenses, fluctuations and trends. Anything that is over a certain threshold should be investigated.
When to do it
At Cathcap we recommend reviewing expenses by vendor at least quarterly. This allows for enough of the relationship to transpire and soon enough to revise any items before any significant cash outflows occur.
Why do it
Being profitable is all about strategy. This simple approach not only helps you look for operational cost reductions it also can help you plan for how and when you make payments or renew contracts. Cash planning is vital to any company and knowing the cyclical trends of your business can contribute to your success. Say you renew your software license annually but at the worst possible quarter when revenues are typically sluggish. One suggestion would be to extend the monthly contract for three months (say March and not December) so the annual renewal will now fall during a better revenue quarter. Strategy can be simple. Execution is the key.
The take away
Reducing operational costs doesn’t have to be painful. With a mindful approach cost-conscious solutions will emerge. At Cathcap we collaboratively work with our clients to find these solutions. We spark conversations which lead to better profits. We encourage owners to get curious about the how’s and why’s of their company.
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