Get ready. I’m about to tell you the most expensive thing in your business. Regardless of industry or size, all businesses have this one thing in common that is costing them money.
Justifications.
Not so shocking, is it? Justifications creep into our business when we let emotion take part in our decision-making.
Now, before you think of me as some emotionless robot, I want to say that there are times when emotions are valuable in business.
For example, denying someone a day off when a family member dies may save you some $, but it makes you a jerk.
When it comes to the expenses in our business, it’s important to periodically take a step back and look at things without emotion. This is because we can justify any expense at any time.
Operating Expenses vs. Operating Investments
Let’s start by breaking your expenses into two core categories:
Operating Expenses & Operating Investments.
Simply go through each expense and ask yourself “Does this provide a direct ROI that is greater than what I’m paying?”
Here are some examples:
Operating Investments:
-Sales person
-Inventory
-Machine that increases production
-Coaches or Consultants
-Online store/course platform
-Advertising
Operating Expenses:
-Office space
-(most) Softwares & subscriptions
-Administrative assistants
-Snacks and amenities for the office
I can feel some of you internally arguing where I put these. And that’s okay! It’s not always a hard fast rule- just be cautious about letting justifications creep in.
For example, an office space is usually an expense, not an investment. It might be nice to have, but the space itself isn’t generating revenue.
However, if you own a restaurant, that space would be an investment as it’s (hopefully) making you more than you’re paying for it.
The “Keep, Cut, Trim” Exercise
Now that you have a picture of your investments vs. expenses, it’s time to make some changes. I recommend an exercise called Keep, Cut, Trim.
On a piece of paper, create 3 columns and title them “Keep,” “Cut,” and “Trim.” Then, take the expenses you listed and put them into each of the columns.
Things that can be cut entirely go in the “Cut” column. This might be a subscription you don’t necessarily need that’s been sitting in the background.
Some things you might need, but there’s an opportunity to trim it. Put these in the “Trim” column. Maybe one of your softwares has a cheaper option, or you can cut back the hours on a non-essential employee.
Finally, things that absolutely must stay as-is go in the “Keep” column. I recommend running these through the trim column first to see if there’s an opportunity to cut back.
Again, be careful about justifying expenses here. Take a step back and look at the numbers when deciding whether something truly goes in the Keep column.
I recommend going through this exercise every 3 months. This way you’re always on top of your expenses and are proactive with where your money is going.
I also recommend bringing in a good coach to walk through this exercise with you. They will have the ability to take the emotion out and help you see things from a logical perspective. And a good coach will talk through things to see if it’s a justification, or if the expense truly is important.
I guide my clients through this exercise and the savings are incredible. I’d love to help you do the same. Schedule a free consultation to see how we can save you money in your business.
