Costs have a direct impact on a company’s bottom line. Many small businesspeople, recognizing the vital role of sales and revenue growth in their profitability, end up focusing more or less exclusively on sales. This is a mistake. It is a mistake for two big reasons.
First, expenses are just as important as income. Profit is composed of both of them. Even the largest and most successful companies will struggle mightily if they cannot control costs. General Motors for years has been a prime example of this. GM, one of the largest American companies by revenue at a staggering $149 billion in 2009, nevertheless lost $31 billion that year. Evidently, even billions and billions of dollars in sales are not enough to turn a profit, if expenses are not kept in check.
Second, it is actually EASIER to cut expenses than it is to increase revenue. Depending on your industry, your product offering and your sales team, it might take dozens or even hundreds of individual attempts before you get a new client. With limited resources or a small team, that might take many hours, weeks or months of labor. By contrast, how much time does it take to cut a cost? Approximately zero seconds. And how many resources does it take? Nothing more than a spreadsheet with a list of expenses.
For these reasons, cost cutting should be a major financial activity of every small business. A regular and frequent analysis of all expenses and their importance, relevance and justification should be performed. For inspiration, remember that in order to waste $10,000 in one year, all it takes is about $27 per day.
What can you do with an extra $10,000 in profit this year?
