#14: CUT COSTS LIKE A BOSS

In this episode of Financially Adjusted, I discuss essential strategies for evaluating costs effectively. I talk about creating a master list of recurring expenses, utilizing accounting software to evaluate expenses, and how to regularly evaluate costs to cut unnecessary expenses. Whether you’re just starting out or have been in business for a while, these tips will help you maintain control over your finances and boost your bottom line. 

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Recommended payroll software (affiliate link):
ADP: http://accountantprogram.adp.com/accept/?EID=5453c160-167e-4c6b-aedc-893d78fb3f87&type=ShareUrl

GUSTO (affiliate link): https://gusto.com/r/leslie4559

QuickBooks Online is my go-to accounting software. Get the best discount possible (30% off for 12 months) when you buy with my affiliate link below, through Complete Business Group. Message me at support@financiallyadjusted.com with any questions regarding signing up.
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My favorite budgeting app w/ an amazing free version: https://www.ramseysolutions.com/ramseyplus/everydollar

My preferred business credit card with cash rewards (affiliate link):
If you have healthy behaviors around spending with a credit card, this is a great one to use and earn cash back. It also links up well with QuickBooks Online. If you have unhealthy spending habits with credit cards, please avoid using one! You need to be able to pay it off monthly and not carry a balance. I use this one for my business and it makes paying bills simple. https://i.capitalone.com/Jnub3fUEX

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Disclaimer: This content is for educational and informational purposes only. Please consult with an accounting professional for direct advice based on your specific business situation.

Transcript

Hello there my entrepreneurial friend. I am so glad you're back with me for another episode of Financially Adjusted. I'm your host, Leslie Roth, If you're an entrepreneur, especially a new entrepreneur, you probably feel like half of business ownership is just paying bills and keeping your expenses in check and manageable. This can feel a little bit like a battle sometimes on a daily basis, more so when you're in the beginning stage of business. In this stage of business, you kind of can feel like the expenses are adding up way faster than you have revenue coming in. And just when you think you have a handle on all the expenses, unexpected ones pop up or you forget about a bill that you pay annually. Most times when you're in the beginning stages of business you're not quite in a rhythm or familiar with the regular happenings of business so everything feels a little bit new and you often feel like a fish out of water in every aspect of your business.

Today I'm going to be talking about some strategies you can use in your business to get organized and evaluate expenses in a way that helps you cut costs like a boss. These strategies are for entrepreneurs who are at any stage of business, but I do feel like when you're in the beginning stages of a business, being organized is even more essential because everything is so new and there are so many variables. It's just a good idea to keep a closer eye on your costs as well because you haven't had that the regular flow of revenue coming in yet. And there's a good chance that your budget is a little tighter. The finances are a little bit more pinched in that stage of business.

So, I am going to get into it and I hope this episode gets you thinking about how you can implement these strategies in your own business to cut costs and minimize how much you have flowing out the door every day. And also, just make you feel like you have more control over your business and more of a handle on things.

The first step to gaining control of your expenses is to list out all of your recurring expense into a master list. This can be in a spreadsheet or if you’re old school, on a piece of paper and there's nothing wrong with old school. I did old school for quite some time. I am a spreadsheet gal, of course now, but there's nothing wrong with a piece of paper when you're just getting started with something like this. It can just be simple. Or if you have like a note section on your phone or like a notes app. I use Evernote. And something like that would even work too. When you're just listing everything out to begin with, it doesn't have to be hard. You can simply start with that pad and paper or a  blank spreadsheet if you'd like but the idea is to take inventory of your expenses that happen on a regular basis.

This includes all of your recurring monthly quarterly and annual expenses. If you're just starting out in business this will likely be a quicker process and a shorter list. But, if you've been in business awhile or have had a lot of expenses in your business, it could take a little time at first. If you have accounting software, you can pull an expense report that sorts out these expenses over a period of time and breaks them out by vendor so that you can sort through them easier and just look at a glance and really see which ones are recurring on a monthly annual basis, but it's an easy way to see what bills are recurring and what were one-off expenses. You should look back over the period of at least twelve months so that you aren't missing anything. And, of course, if you're new you're probably not to have twelve months but that's if you're an established business. You just definitely want to assess the last twelve months and make sure that you're seeing what's happened in a full year of business. If you haven't been using an accounting software program, like QuickBooks online, you can pull bank and credit card statements from whatever period. If you're new in business, a couple months. If you've been established, definitely that last twelve months and then you can use those bank statements to work from. The idea is to calculate all of your expenses so that you get the monthly cost of your total expenses, meaning that if you pay bills annually or on a quarterly basis you will simply calculate the cost of that expense on a monthly basis. So, if you pay many of your bills annually to save money, you'll just divide by twelve.

Having your bills broken down on a monthly basis will allow you to prepare better by being able to put the monthly amounts into a spreadsheet or a money plan as I like to call it. I'm actually fine with the word budget but I know that really makes a lot of people cringe. So, if you need to call it a money plan, and think of it in a different way, please do that. It's all about mindset when you're doing this stuff. Don't keep using a word that makes you cringe. I mean I may say budget here and there, but I also use that interchangeably with money plan. Because really that's all it is. A plan for your money.

Anyways, I get off on a tangent sometimes about the budgeting thing but listing out your expenses in this way will help you to save for those annual bills or quarterly bills so that you have the money when they come due. And it'll also allow you to have one central easy place to go and evaluate these bills. So, you know having that master list you can just reference back to that at any time that you need to see you know what is coming through and when what is the frequency of that. This is going to be your go-to place outside of your profit and loss statement that helps you evaluate your expenses and whether or not they are necessary. 

And your profit and loss statement is a good place to evaluate your expenses in relation to your revenue and see what percentage of your revenue those expenses are coming in at each month and what that looks like for you in terms of profit. This master spreadsheet is going to be the granular view of your cost. You can look at each one individually and can evaluate the necessity of it and the ROI that you're getting back from that expense. You can also track details about how those bills are paid like payment method frequency, any other future price changes. This spreadsheet can also be really useful for if you have an office manager or an outsourced bookkeeper that are helping you to pay your bills. They could use that potentially as a point of reference for the payment method the frequency, just so they're aware of what bills you have coming through your business and make sure nothing's missed. And also make sure…or verify what payment method is being used. So you know if you use a debit card for something and then you've gotten a new card you could maybe hand that off that new card to your outsourced bookkeeper or your office manager and just let them know hey, I'm gonna need you to go through that master list and just take a look at all the bills that are paid better paid with that card. And change them online to the new card information. And that way, you know you have everything up to date but it will be a really easy go-to reference point for you or for anybody who helping you. 

And then next we're going to get into the frequency of check ins and evaluation of your expenses. So you've got your master spreadsheet you're gonna be evaluating that from time to time so that you can look through and really remind yourself of what you're spending money on. And is it worth it? But how often do you want to go back and reference that master spreadsheet or that master list ,wherever you have it, whether it's on your piece of paper your notes section or your spreadsheet. You will ideally be checking in periodically and that can be different for what stage you're in in your business. So ideally checking in monthly is going to be the best frequency in my opinion for any business that is newer and just getting acclimated their business numbers and are in growth mode. And when every dollar is really counting. I think every dollar really counts all the time in business but it's more so when you're in the beginning stages or in a growth stage. If you have your finances pinched for any reason.

Throughout any stage of your business, you are definitely going to wanna also check-in more frequently like monthly. Or if you're really struggling, this might be a weekly thing. You really just have to gauge where you're at and what your frequency of check-in needs are. It's especially important to stay on top of your expenses when your profit margins are slimmer and you're breaking even or going to take a loss because if you're in that stage and you have a bunch of random expenses for subscriptions to things that you're not really using, you should really evaluate those and get rid of them. If they're causing you to be pinched even further, and they're not giving you an ROI. So, when you're evaluating costs in general, you're looking at the necessity and the ROI of a cost.

Some expenses are an absolute necessity to run your business and get a job done and some are like ‘would be nice’ expenses. And by this, I mean that they aren't necessary, but you'd like to purchase them. For instance, many businesses can do just fine getting off the ground without website or expensive ads. Costs like this could be held off until revenue is generated. When you're further down the road in your business and you're turning a profit, you can start to justify those ‘would be nice’ costs. And it's not that they can't enhance your business when you're just starting out, but the ROI might not be enough to justify them.

Down the road when you have more profit, or more profit margin, it's more justifiable to pay for things like a website or expensive ads because it's not going to be putting you in a position where you potentially have a net loss because of it. 

If you have a business that has a healthy profit margin and gives you more flexibility with cash flow, you don't necessarily need to do a deeper level analysis of your expenses at a granular level line by line each month. It's still necessary to evaluate your profit and loss statement monthly and have your finger on the pulse so to speak of where your money is going and what your profit margin is. However, checking in quarterly on a more granular level would suffice to stay on top of your expenses. If you have a bookkeeper who's helping you evaluate your numbers, they can also help you with this evaluation to an extent. As the business owner it's your responsibility and your duty to make the bigger decisions about what's right for your business. But a bookkeeper can help you evaluate higher line items on your P and L that are getting out of control and eating up your profit. So, for instance, if you have an outsourced bookkeeper and they're generating monthly reports for you, which is what should be happening, either by them or by you, they can help you evaluate and look line by line and see what percentage those costs are in comparison to your revenue and alert you to ones that are really creeping up and eating away at your profit each month. But as far as evaluating whether or not you can cut costs in a particular category as it applies to your business strategy and what you want for your business, a bookkeeper, that's not really their place. So, I mean they can they can look to see if there's duplicate or fraudulent charges look to see if something's getting higher and alert you to that but as far as them deciding if you're getting enough ROI or if you should continue paying for something in the more grand scheme of your business, that really is something you need to make a decision about. And the bookkeeper isn't going to know all the insights into every aspect of business to be able to make that call. So, their job is to provide more surface level guidance and it's up to you to decide if an expense is worth keeping or if you should cut it. For instance, if you pay for a pricey software subscription helps you run your business, they might not necessarily know if that software is helping you enough to be worth the cost. They can only point out that it's a hefty chunk of your profit each month. You need to be the one to decide if you can operate effectively and efficiently with a less expensive software.

And if the one you have is maybe high in cost. So, for instance one of the expense categories that I see getting out of control in most businesses is subscriptions and memberships. That's why I use that example of the software there. These types of expenses really tend to get loss the shuffle because you purchase it and then maybe you don't use it as much as you thought. Or maybe the cost goes way up and this forces you to evaluate if it's worth keeping. The line item is the same one in personal budgets that I see being really high. It's just that habit that people have gotten into with everything being automated these days. You put it on autopilot and don't think about it and then it's been coming out for months and months and you haven't used that subscription. So just be very wary of that. It's easy to get sucked into that trap and have money going out the window.

If you commit to checking in at a certain frequency with your costs, you will position yourself to be in total boss mode when it comes to cutting your costs. And also, there are times when you would get that email that costs are going up and this is a great time to also jump in and just take a look at what you've been paying is it worth it to continue on.

I can give you a real time example from my own business. Recently I was paying for an expensive software tool that helped me send proposals and easily have clients set up their recurring payments for my monthly bookkeeping services, and it would streamline this process and charge people on a recurring basis. While I really did love the software it was a pretty robust tool that was just a lot more than what I actually needed it for. I got notice recently that the cost was going up at the end of the year to a significantly higher price. This prompted me to evaluate whether or not I use this software enough to justify the price and the answer was no. I'm now switching to a different service and payment processing system and saved myself thousands of dollars annually. You'd be amazed at how you can cut costs and increase your bottom line by regular expense evaluation.

Since time can slip away with the busyness of the business and life, I suggest creating a task reminder in your Google Calendar or task management system so that you can get a prompt to sit down and do this at whatever frequency you decide is best for you and your business. This is one of the best ways you can be proactive in your business outside of creating a monthly budget or money plan. This is truly one of the best ways that you can be boss of your business and your money. You work hard in your business and it's worth the time to spend evaluating where your hard-earned money is going and making sure that you safeguard your profits so that you can point them in the direction you want them to go. And not just have them eaten up by a bunch of costs that you really aren't needing to throw money at. 

I hope this episode gives you some guidance and lights a spark for how you want to start checking in with your money. If you do this, I would absolutely love to hear your cost cutting stories. Creating a budget or a money plan is also an essential part of being the boss of your own money, so if you haven’t listened to my episode all about this topic, please go back and do this. It’s episode 2 and it's called ‘Don't Fudge it, Just Budget’.

If you're new at this or you're looking to get better at this in your business and your life, this can be a good guide for you. But my hope for you is that you have a thriving business and you keep as much of revenue as possible. 

So, if you wanna share your cutting stories or just any business story with me you can reach out to me at support@financiallyadjusted.com. Make sure you hit the follow or subscribe button wherever you're tuning in so that you don't miss any great financial tips in the future. I also have some great free resources that you can snag on my website. Just go to financiallyadjusted.com and click ‘free resources’ at the top.