Q: What company expenses can we save on that will have a large impact on our cash flow and profits, but will have little impact on our products or services?
A: There are two types of operating expenses that you have to consider: variable expense and fixed expense.
Variable expenses are those that change depending on your sales level.
Normally, this pertains to the cost of your product. If you sell a large quantity, your cost of sales rises and vice versa. Because the expense varies with the level of your production, a little savings in cost per unit may mean huge savings especially if your sales volume is high.
You may want to review your costing and check your margins. Are you paying the least possible amount to your suppliers without sacrificing quality?
Are there available substitutes that can help you lower your costs? How is your inventory damage and wastages?
These are some of the things you need to check in order to improve your margins. Any improvement of 1 to 2 percent in margins may mean substantial improvements on your bottom line.
Now, let’s look at your fixed expenses. You have expenses in your company that you can not change regardless of your sales level.
Examples of these are the salaries of your employees, electricity, and rental expenses. Without these, it will be impossible to run your business.
To save on costs, you can review your expenses and find ways on how to lower it effectively.
Are you paying too much overtime fees to employees? Is your electricity bill increasing compared to the previous months?
Do you think it’s time to look for a bigger space at almost the same rent so you can increase your productivity?
These may seem like small savings here and there, but when you add them all up, you’ll see how it will make a difference on your cash flow.
