Where Are the Best Places to Look to Find Cost Savings?
Aug 22, 2024As a business owner, balancing the need to increase revenue and reduce costs to improve profitability is a constant struggle. While finding creative ways to earn more strategically without incurring additional costs (scaling) is ideal, there are situations where you need to cut costs. Shannon provides a framework to help you identify cost-saving opportunities.
First, target your fixed costs - expenses incurred regardless of sales volume, such as administrative costs, office expenses, and rent. Evaluate each expense individually to determine if it's adding value to your business, and consider freezing, pausing, or cutting non-essential expenses during low cash flow periods.
Next, examine your customer acquisition costs (CAC) and ensure a healthy return on investment. If your CAC exceeds your customer lifetime value (CLV), cuts need to be made.
While taxes are the biggest expense for entrepreneurs, Shannon cautions against immediately jumping to extreme tax-saving strategies when faced with a big tax bill. Instead, focus on addressing core problems like poor money management and cash flow issues first, then look for opportunities to reduce tax liability through small tweaks that align with your existing business practices.
Before implementing cost-saving strategies, identify the root cause of your financial situation. Ask yourself what conditions led you to conclude that cost-saving is necessary, and whether you need to make a behavioral change to address the issue.
Prioritize cash management over quick fixes. While saving on taxes is important, it should be secondary to managing your cash flow effectively. Focus on improving your cash management skills and working on long-lasting solutions rather than seeking out superficial quick fixes.
By following Shannon's framework and prioritizing cash management, you can identify the most effective areas to cut costs in your business and work towards a more profitable future.
What you'll hear in this episode:
05:13 Consider switching to incentive-based commission model.
08:24 Reducing tax liability through strategic operational decisions.
11:48 Question why you seek cost savings critically.
If you like this episode, check out:
When to Invest in Premium Products and Services
How Do I Avoid Payment Processing Fees?
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The information contained in this podcast is intended for educational purposes only and is not individual tax advice. Please consult a qualified professional before implementing anything you learn.
