Start Out the New Year Right by Reviewing Your Business Expenses
The beginning of a new year is an ideal time to review your business expenses, contracts with vendors, and insurance renewals. It’s not just about cutting costs, but about optimizing your resources and ensuring that every dollar spent is contributing to the growth and success of your business.
Why Review Expenses Annually?
Annual expense reviews are crucial for several reasons:
Identify unnecessary expenses: Over time, businesses often accumulate expenses that are no longer necessary. An annual review helps identify these and eliminate them.
Optimize necessary expenses: Some expenses are essential but may need to be adjusted. For example, you might be paying for a premium subscription that you could downgrade without affecting your operations.
Negotiate better terms: Regular reviews give you the opportunity to renegotiate contracts with vendors, suppliers, and service providers.
Plan for the future: By reviewing expenses such as insurance and leases, you can make informed decisions about the future needs of your business.
How to Conduct an Annual Expense Review:
Here’s a simple step-by-step guide to conducting an annual expense review:
Run a Profit and Loss Detail Statement for the previous year: This gives you a clear picture of where your money has been going.
Review recurring expenses: Categorize them into ‘not necessary anymore’, ‘necessary but need a different scope’, and ‘necessary’. Set goals for when you will cancel or adjust these expenses.
Evaluate vendors and suppliers: Can you renegotiate payment terms or get a discount for bulk or early payment? Are there other suppliers with better terms, price points, or service?
Check utility providers: Are there more affordable options available?
Review insurance policies: Put a reminder on your calendar a month before renewal to review your coverage and get quotes from different carriers.
Monitor interest rates: Stay in regular contact with your banker to know when it would be advantageous to renegotiate your loans or line of credit.
Consider lease renewals: Give yourself enough time to negotiate new terms with your landlord or consider other options.
Remember, the goal is not just to cut costs, but to ensure that every dollar you spend is working for your business. By running a comparative Income Statement report, you can see your savings and stay motivated and on target.
