You’ve probably heard the phrase “turnover is vanity, profit is sanity”. It may be a cliché, but it’s certainly true.
It doesn’t matter how many sales you make, if you don’t make any profit from them, then there is no point.
So it’s vital to control your expenses and ensure that, as your business grows, your income grows with it.
Let’s start with the boring stuff – understanding what we mean by expenses and the different types (sorry, but it’s got to be done).
Understand what is expense & what is investment
Obviously expenses are the things you spend money on, but it’s worth understanding the difference between those that are simply overheads and those where you spend money in order to make more sales.
Your marketing costs should be an investment (if you’re doing it right). Spend money on attending a wedding fair and you should get sufficient business to cover the cost and make a profit.
Things like insurance, utilities and banking fees are definitely overheads.
Of course, the lines can get blurred – rent is usually purely an expense, but if you have a retail shop then it certainly contributes towards your sales.
It matters because you need to be careful when reducing expenses not to damage your sales. Too many businesses cut back their marketing in times of hardship and end up making things worse.
Separate fixed & variable expenses
Fixed expenses are those you will be paying out regardless of how many sales you make. Rent, most marketing and staffing costs.
Variable expenses depend on your sales such as the materials you need to buy.
Again this isn’t always clear cut – if you employ staff on flexible contracts (e.g. event catering) then those costs will only occur to meet sales demand.
With these figures you can understand how much profit you make per sale, and how much you need to cover your fixed expenses.
OK, so that’s the dull accountancy stuff done. Now let’s look at how you can tackle your expenses and make more profit for yourself.
Have an Annual Review
Put a note in your diary to review your expenses every year. It’s too easy to just carry on with the same utilities supplier, mobile phone contract and suppliers.
- Shop around to save money on the boring essentials
- If you purchase stock (like flowers, stationery supplies, dresses) this will be a key area for savings. Review your suppliers. Are there alternatives? Can you negotiate a better deal with existing suppliers? Even small savings here can make a big difference when multiplied across your annual sales.
- Go through your marketing and trim those costs and activities which are not bringing results. For example, do you really need a glossy brochure – or would the money be better spent on upgrading your website?
Use events to re-assess
Unexpected events can be a real pain – losing a key member of staff or a supplier going out of business. But rather than panic and rush to replace them you can turn the situation to your advantage and take the opportunity to re-assess and look at whether the status quo really was the best option.
This is especially true if you have staff which is often one of the largest costs. Look at whether the existing roles are right for the business and decide whether you need a like for like replacement or move to a more efficient structure.
Does everything pass the value test?
Finally, whenever you are about to spend money on something, just ask yourself “what is this going to do for my business?”.
Will that top of the range coffee machine persuade more high end brides to book you? (Not if you carry out most of your consultations at venues).
Do flowers in my home office improve my mood and productivity?
Would employing a cleaner free up more of my time to work on new designs?
It’s OK to have indulgences and they can have a really positive impact (remember what we said about investment!). No, your business probably doesn’t need to take a table at that awards dinner, but it could be a great way to reward staff for their hard work – and will pay for itself in productivity and motivation.
Your expenses should be lean – but they don’t need to be mean.