What was the most impactful thing to the bottom line of your business that you spent time on this week?
I clocked up over 4 hours reviewing monthly costs in our businesses and whilst it wasn’t fun, it was very satisfying.
In the last few months I’ve heard several wealthy and successful business people make reference to the equal importance of cost management alongside revenue growth. Revenue growth can often be where the sole focus goes however, particularly in an exciting and fairly high growth space.
I’ve also referenced the book Profit First, by Mike Michalowicz, in several previous posts but I think it will only serve as a great reminder to mention it again. It really is fantastic and a must read, but not just a read, rather a read and MUST implement. The key message in the book is about allocating revenue across 5 buckets (or bank accounts) at the end of the month in order to create profit first and pay yourself first.
One of the analogies that Mike uses in the book is about how we can all be very good at making the last bit of toothpaste in the tube last a surprising number of additional days – ie by not splurging overzealous amounts onto our toothbrush each time and by being diligent to squeeze out every last drop from each corner and crease of the tube. The lesson to carry over here is for us to treat our business operating account in the same fashion. In other words, allocate an amount we need to operate the business with each month and then be extremely resourceful about how we allocate and use that money.
To that end, Mike recommends doing a ruthless review of monthly outgoings a few times a year ie this could be half yearly or even quarterly.
Back to property. We run a portfolio of serviced accommodation properties (both our own and managing for other investors). Because every property will have 4 -5 typical monthly outgoings aside from rent/mortgage (ie gas, electric, wifi, TV license, council tax/business rates) it doesn’t take too many properties to suddenly have tens upon tens of monthly outgoings.
Those 4 hours I referred to above have led, and are leading to, healthy cost savings each month that will compound across the year.
Here’s the exercise, if you’re interested:
-Pull up a list of all the direct debits and standing orders from your business bank accounts
-Copy and paste them into an excel spreadsheet and allocate them to the relevant property
-Go through line by line and challenge yourself on whether the item you’re paying for is still required in the business (ie loads of people have subscriptions they are no longer using)
-For items that you do need like the utilities for a property, check if the amounts are still at a suitable level
-Call utility companies to move onto their best deals
-You will also make savings by moving some bills onto direct debit that currently aren’t on DD
-Use your spreadsheet to track all the utilities and direct debits for each property so you can review again in another 3-6 months
The areas we’ve been able to cut monthly bills have been:
*Broadband accounts – we often set and forget with these but after the initial promotional period broadband providers typically roll you onto an expensive deal so you have to monitor that and move to their current best deal when the time comes (amount saved c.£15 per wifi account)
*Opting out of paper billing with a wifi provider has saved us a few £’s each month too
*Utilities – with up to date readings and a year of usage history you can discuss with your provider the likely projected usage and re-set your monthly payments (amount saved on one of our bigger properties was £235 per month)
*Make sure you have online accounts for your utilities and you are on direct debit, this can save approx £40/year and give you access to the most competitive unit rates
So here we are at the beginning of a new quarter and a new tax year – a great punctuation in the year to pause and do this exercise yourself. And of course this doesn’t apply to business only, why not do the same for your personal outgoings?