Spending vs Innovating: Which One Gets You Ahead?
11 MIN READ
Tools to Effectively Manage Expenses
Last week’s article discussed evaluating and maintaining operating expenses, which addressed the importance of regularly reviewing your expenses to ensure that you are receiving the business value you expect. Utilizing your costs for maximum business value is a great way to run your business without increasing costs efficiently.
We introduced a methodology that you can use to evaluate your expenses to determine what changes you need to make to reach your goals.
If you haven’t read week 2’s article about How to Evaluate Your Operating Expenses, please do that now.
Today’s article expands upon ideas discussed in that article, which is a much-needed foundation for understanding the more advanced concepts presented here.
Dollars Spent vs Value Generated
In step 3 from last week, we talked about one of the ways that you can lower your expenses, which is to find an option that delivers more value for your business. Evaluating a product or service’s value to your business is essential in determining what expenses the company no longer needs vs. which expenses the business should be keeping.
Too many business owners hear the term “Cut Expenses” and only think of the direct dollar cost of the expense. However, they often forget to compare business value to economic value when initially making the purchase.
However, on the other hand, it’s also possible to forget the value you first thought a product or service would bring to your value. So, when it comes time to cut expenses, you only look at the price tag rather than the value it offers. For example, you see $199/month and think that is too much for me to spend, so I’ll just cut it.
The part of the equation overlooked is the value received for that $199/month. For example, perhaps that $199/month bill allows you to perform automatic collections instead of hiring another dedicated staff person for $15/hr for 20 hours per week. The cost difference for the same result, or value, is significant $199 per month for the automation software vs. $1,200 per month in additional salary.
Consider that while you are not spending an additional $1,200 per month in salary, you are also freeing up your existing team’s time to focus on what your $199 per month service is not automating. Not only are you saving money by keeping the expense, but you are also making your team more effective.
Often that train of thought leads to the following idea, well, I will have my existing team do it and save both the $199 and $1,200 per month and really come out ahead. But, it hardly ever seems to work out that way. Why? Well, because your existing team could only handle what they were handling because of that $199 service automating part of their job. By removing that service, you are removing part of the automation from your existing team, causing them to have to pick up the slack. Removing that service, in turn, leaves your current staff with less time; thus, they have to stop doing other tasks you have gotten accustomed to getting done.
This reinvestment in your staff’s time, in what was previously automated, could mean your team has less time to answer phones or may limit the amount of facetime they have with patients. These reductions in personalization’s with your patients could end up hurting your patient’s perspective of your practice and may even reduce the number of referrals you get from existing patients.
That’s why continually evaluating expenses on both price and overall business value is essential. If your business is not getting the desired value for the price, it may be time to consider alternative cost-effective or innovative solutions.
“If I had an hour to solve a problem, I would spend 55 minutes defining it and 5 minutes solving it.”
– Albert Einstein
Embracing technology is another excellent way to lower the dollars spent and increase the value of the business. For example, innovative software solutions can be a great way to streamline many different processes and consolidate workloads.
Getting the correct software solution could mean a considerable saving in staff hours. For example, what was taking two staff members now is only taking one staff member; what once took 8 hours to complete now takes 3 hours to finish.
While switching software solutions may or may not directly benefit from reducing your operating expenses dollar-wise, the benefits of increased productivity and efficiency of your staff can be a considerable profitability boost.
Not only can you save money on salary because it takes less time to complete the task, but your staff now has time to be more productive in other areas of the business, which could have countless positive effects on your business.
Even things like re-evaluating your printing policies can be an expense cutter. Does everything need to be printed out on paper? Can the task be performed electronically instead? If it still requires to be printed, can it be double-sided? How about switching to black and white instead of color? Talk to your staff, evaluate what they are printing and why, and come up with cost-benefit alternatives.
What about printing and mailing statements for overdue accounts? Perhaps switching to management software that sends email notifications with outstanding balance statements that offer an online payment method can be a cost-cutting move. Not only do you save on paper and ink, but you also save on envelopes and postage. You save labor for generating, printing, stuffing, stamping, and mailing. On top of that, the online payment option cuts the time your staff spends on the phone or manually processing statements.
Leveraging existing or investing in new technology for your office may provide savings in ways you never thought possible.
Evaluate your processes regularly to ensure you maximize your business value compared to your expenses.
Have you ever thought about cutting utility usage in your business? When you leave at the end of the day, are you turning off the lights in your office and lowering or raising the temperature a few degrees?
Turning up or down the climate control just a few degrees may not make a huge difference in comfort but could save hundreds of dollars on utilities during the year.
Something as simple as changing light switches to motion-activated ones for rooms that is less commonly used, such as breakrooms, closets, and bathrooms, is another simple way to ensure money stops getting wasted in rooms that aren’t in use.
Shop for better rates
The world is constantly changing, and new products, services, and solutions are available daily. With the changes in the market, your current vendors may often lower their prices.
You will want to make a point of taking the time, ideally on a quarterly or semi-annual basis, to evaluate your vendors, contracts, and services to ensure you’re getting the best rates for the service provided.
It’s important to compare service to service and not switch vendors simply because of price. Make sure that any changes you make will continue to support your goals for your business and continue to boost productivity.
Pay Invoices On-Time or Early
It is not uncommon for vendors to offer discounts for paying early. Even saving just 2% can make a difference.
You see this most commonly today with the option to get a discount for paying yearly. If you can afford to do so, the annual payment plans can save you a lot of money.
Another benefit is that it will also save you money in accounting fees because there is only one transaction to record instead of twelve.
At the very least, pay your bills on time to avoid any late fees or other penalties. The same goes for loans or any debt that you’ve taken out. Your interest expenses can increase if you’re late or begin to miss payments.
It would be best if you always looked for ways to make your business more efficient and productive. Reviewing and enhancing your processes and procedures can significantly impact wasted time and materials. Look for ways to deliver your service more efficiently, educate customers on methods, and create consistency within your business.
Empowering staff solves problems and inefficiencies within their workflow can also be a profitability boost. It saves you as the business owner money and empowers the staff person in their position, which can lead to increased productivity and loyalty.
Reducing expenses in your business is an essential task that will require a lot of evaluation and critical review. You will not only need to determine which costs you can eliminate, but you will need to start thinking outside of the box to find solutions to get more value from the expenses you need to keep. By increasing the value, you will see your business’s profitability grow and have a profound impact on the future of your business.
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