Managing your costs is one of the most challenging things to do as an entrepreneur, no matter if you’re a startup or an established business.
In business, there’s a proven principle: everything costs something. Nothing is free. It either costs time, money, or resources. Managing these costs and keeping them as low as possible is one of the best ways to lead a business to success.
And, the more costs you can cut, the more money and resources you can pump into growing your business.
One way to begin cutting costs is to frame costs in the right way. A cost is either fixed or variable, generally speaking. In other words, just like a mortgage, a cost can be permanent, or it can change and fluctuate.
Variable costs can get you into trouble if you’re not careful, but most of your budget will be eaten up by fixed costs. Rent is a fixed cost. Salary and wages are a fixed cost at any given time based on the people you have at that time. Anything that you can consider as overhead is generally a fixed cost.
Be mindful of entering into new fixed expenses. You don’t want to burden your business with inflexible costs. You want to stay nimble and flexible. If you can restructure your costs to be more flexible and variable – without exposing yourself to disastrously higher outlays of cash if something goes wrong – you should.
You can also cut costs by reducing your footprint. A lot of businesses have premises larger than what’s needed. Either they rented or bought too much space in the beginning for growth they anticipated but never came, or they streamlined their processes and realized they are taking up more space than they should.
That’s why you should only grow physically after you’ve grown fiscally. Only add more space if your business absolutely requires it. Don’t anticipate growth that requires expansion because the market may shift and that growth may not arrive – leaving you stranded with more of a rent or mortgage than you can afford.
Finally, try to avoid financing when at all possible, and if you do have to go into debt, be smart about the terms and what type of debt you are considering. It’s not worth mortgaging the future of your business for today. You’ll dig yourself into a financial hole from which it is very difficult to emerge.
The smarter you are with financing, the more you can cut costs, because financing means you’re paying for money and – true to the eternal principle – that access to money comes at a cost. The lower the cost, the better.
Cutting cost should be the mantra of any entrepreneur looking to spur growth. Look for any opportunity you can find to reduce overhead and create more favorable terms on contracts and rates. Never stop looking for ways to streamline and become more efficient.
You’ll find that costs can frequently be reduced no matter what’s going on – and knowing that will make you a better entrepreneur.
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