Having the ability to prune the expense tree in your business (you can laugh at my shameless business coach attempt at a cool metaphor) can mean the difference of success or failure within a business. Cutting expenses by 3% is part of the path in most of the business plans Clay creates for our business coaching clients’. Today in our morning business coaching meeting, a question was asked that prompted Clay to say, and I quote, “Gross revenue is GROSS!”. Well, there you have it. Gross revenue is gross and it doesn’t really matter.
Here at the Thrivetime Show, whether on the podcast, in a business coach meeting or at a business conference, you will hear us talking about knowing your numbers. It is so important to know your numbers. However, that isn’t the entire emphasis of this blog post. Ultimately, how much gross revenue you have does not matter. What matters is how much you actually keep. Cutting expenses is a major challenge in any business, but if your net profit is suffering despite having more revenue than you’ve ever had, it’s not worth it.
Steps To Cutting Your Expenses
Track Your Income and Expenses
We do this with clients all the time. You simply make two columns in a spreadsheet and input every single thing you get paid for in one column and every single expense in another column. Yes, this means a burrito, interest paid to you on your bank account, and everything in between. When we say everything, we mean everything. Leave NOTHING out.
Determine Where Your Money is Going
Where is your money going? Take categories from each thing you pay for. How much does it cost you to sell your goods or service? How much are your fixed expenses? Find out where it is going and find small ways to cut expenses, even if it is a little bit at a time. Above everything else, know your numbers so you can determine your breakeven point.
Eliminate Anything You Don’t Need
Start thinking about what you actually need. If you don’t need something, or you purchase something out of convenience, or you’re paying someone you probably shouldn’t be paying, it’s time to prune the tree! This is where it is sometimes good to get an unbiased set of eyes on this. It helps to have a business coach because it is another set of eyes truly asking if certain expenses are absolutely necessary to the growth of your business. Many times, the answer is no and people don’t always realize that until someone else points it out.
Ultimately, it matters how much you are able to keep for yourself. After all, if you built your business to serve you, the owner, you want to be the one taking home the biggest sliver of the pie. If you know your numbers, you know exactly how much of your expenses you need to cut in order to meet your income goals. Remember, don’t get too excited when you see how much gross revenue you brought in this month. You need to know exactly how much you took home, including after taxes are taken out. Yes, taxes are an expense as well.