1. Identify your major cost centres

Although you probably have a rough idea of your business costs, understanding exactly where your biggest expenses lie is an important first step in cost management. Review your main cost centres, including:

• employee wages and benefits
• rent
• equipment and vehicles
• utilities
• products and materials
• marketing and advertising
• insurance and other professional fees
• business loans and debts
• other overhead costs such as repairs and maintenance.

Make sure you have a clear picture of how much you’re spending in each category over a specific period, such as the last quarter. Some expenses may be seasonal, so it’s also a good idea to look at how these costs vary during different times of the year.

2. Update business finance statements

Financial statements provide valuable information about how your costs are impacting the financial health of your business. To help you assess your business costs, consult your bookkeeper or if you’d like to take control, now may be a good time to invest in an accounting software program.  At a minimum, you need to be able to produce:

• A profit and loss (P&L) statement: this summarises your revenue and expenses over a period. It’s useful for seeing how business costs are impacting your profit margin.

• A cash flow forecast: this provides an estimate of how much money will be flowing in and out of your business over a future period, such as a month or quarter. Cash flow statements help you to assess how your upcoming expenses will impact your cash flow.

3. Sort the ‘good’ costs from the ‘bad’

Although it’s good practice to keep overheads low, some expenses are essential for long-term growth. Before you start looking at ways to slash costs, consider which areas help drive revenue and profitability for your business, and which are more likely to drain your resources.

For example, if your employees work remotely, rent and utilities might now be considered ‘bad’ costs because they’re no longer contributing to your bottom line.

On the other hand, marketing and advertising expenses that help grow your customer base might be considered ‘good’ costs.

Sorting the ‘good’ expenses from the ‘bad’ can help you identify which areas to target when it comes to cost-cutting.

4. Look for ways to reduce expenses

Once you’ve worked out the difference between helpful and harmful costs, consider how you can consolidate or reduce your ongoing expenses. This could include:

• negotiating new terms with your landlord or suppliers
• switching energy providers, banks or insurance companies to get a better deal
• reducing stock levels and warehousing costs
• reducing payroll costs by changing shift patterns
• cancelling subscriptions you no longer need
• automating business processes using technology
• refinancing business loans
• reducing discretionary spending such as entertainment costs.

Focus on cost-saving in areas where you’re most likely to see the smallest impact on your essential operational activities.

5. Determine your financial goals

If one of your goals is to grow your profit, it’s important to forecast costs and opportunities to ensure your growth is sustainable. For example:

• Landscaping or pool building businesses looking to diversify into outdoor pizza ovens: costs may include additional equipment, upskilling and training employees, updating your website and investing in some initial marketing and advertising.

• Cafes and restaurants looking to expand operations with mobile coffee carts or food trucks: costs may include an additional vehicle and it’s running costs, commercial hospitality equipment, insurance and permits.

• Web designer looking to win more work from existing clients: costs may include hiring freelance support staff, automating or outsourcing tasks such as bookkeeping and invoicing to free up time for meeting with clients.

6. Identify the funding you need

Do you have the means to comfortably grow or sustain your business? We are fortunate to have both government and private business grants available to help support Australian businesses. Many are state or territory-specific and apply to different business stages including small business grants and startups, categories and industries.

Eligibility criteria and application periods vary but if successful a cash injection can make the difference to the future of your business and the Australian economy.

7. Reconcile: business plans vs life goals