Effective cost control measures are crucial to cash flow for running a sustainable business at any time – but even more so during periods of economic uncertainty.

Have you considered rethinking your cost management strategy? It could make the difference in seeing your business thrive in 2021. We’ve gathered some tips to help you get started.

Understand your major expenses

Although you probably have a rough idea of your business costs, understanding exactly where your biggest expenses lie is an important first step in cost management. Review your main cost centres, including:

• employee wages and benefits
• rent
• vehicles/fleets
• equipment & machinery
• utilities
• products and materials
• marketing and advertising
• insurance and other professional fees
• business loans and debts
• other overhead costs such as repairs and maintenance.

Make sure you have a clear picture of how much you’re spending in each category over a specific period, such as the last quarter. Some expenses may be seasonal, so it’s also a good idea to look at how these costs vary during different times of the year.

Keep your financial statements up to date

Financial statements provide valuable information about how your costs are impacting the financial health of your business. To help you assess your business costs, consult your bookkeeper or if you’d like to take control, now may be a good time to invest in an accounting software program.  At a minimum, you need to be able to produce:

A profit and loss (P&L) statement: this summarises your revenue and expenses over a period. It’s useful for seeing how business costs are impacting your profit margin.

A cash flow forecast: this provides an estimate of how much money will be flowing in and out of your business over a future period, such as a month or quarter. Cash flow statements help you to assess how your upcoming expenses will impact your cash flow.

Determine ‘good’ and ‘bad’ costs

Although it’s good practice to keep overheads low, some expenses are essential for long-term growth. Before you start looking at ways to slash costs, consider which areas help drive revenue and profitability for your business, and which are more likely to drain your resources.

For example, if you’ve got an extra vehicle in your fleet not being used any more but you’re still paying the associated costs, this might be considered ‘bad’ costs because the vehicle is no longer contributing to your bottom line.

On the other hand, upgrading machinery that helps to improve production efficiency might be considered ‘good’ costs.

Sorting the ‘good’ expenses from the ‘bad’ can help you identify which areas to target when it comes to cost-cutting.

Cutting unnecessary costs

Once you’ve worked out the difference between helpful and harmful costs, consider how you can consolidate or reduce your ongoing expenses. This could include:

• negotiating new terms with your landlord or suppliers
• switching energy providers, banks or insurance companies to get a better deal
• reducing stock levels and warehousing costs
• automating business processes using technology
• refinancing equipment finance loans
• reducing discretionary spending such as entertainment costs

Focus on cost-saving in areas where you’re most likely to see the smallest impact on your essential operational activities.

Forecasting for your financial goals

If one of your goals is to grow your profit, it’s important to forecast costs and opportunities to ensure your growth is sustainable. For example:

Pool building businesses looking to diversify into landscaping: costs may include additional equipment, upskilling and training employees, updating your website and investing in some initial marketing and advertising.

A Transport business looking to expand into a new state, will need to consider additional trucks, extra employees and possibly a depot in the new location.

A local mechanic looking to add on additional car detailing services. Costs may include additional equipment and initial fit out. Extra staff and an increase in utilities.

Tap into available grants and funding

We are fortunate to have both government and private business grants available to help support Australian businesses. Many are state or territory-specific and apply to different business stages including small business grants and startups, categories and industries.

Eligibility criteria and application periods vary but if successful a cash injection can make the difference to the future of your business and the Australian economy.

Are you looking to purchase or upgrade any commercial assets? Or simply looking to increase your current cash flow? The team at Morris Finance specialise in tailored finance solutions and can help push your business forward. Contact us today on 03 5223 3453 to discuss your options.