I'm sure you will agree to chasing new customers, new sales, new orders are sexy. It drives so many of us. Some of us though, do view selling as a bit of dirty wood.
However, there's no doubt that making a sale gives us a bit of a buzz.
So, do you think you could get that same buzz from cutting your expenses? Maybe by canceling some new software? I very much doubt it. However, in my experience, if you are in a second stage business, that's a business that's grown to where you need to expand beyond you and an assistant.
Then there is more money to be found in reviewing and cutting expenses than there is in chasing new sales.
Let me give you an example. If you sign a new client and on average, it's a hundred pounds a month for your IT services business, then this is something like how it might play out. You place some ads online (Google, YouTube, Facebook, Instagram, etc.) wherever it might be.
Then for this particular client that you've just won based on your past experience of how much it costs you to get leads.
That new client has cost you 30 pounds in advertising. Right? You then need some software to perform the actual work, to monitor everything and keep it all stable. That's cost another 15 pounds a month per client.
So, 15 pounds a month for this client.
Then there is that regular time that you need to serve the client and keep tabs on everything and just make sure everything's as it should be. That's roughly another 20 pounds.
Then on top of this in order to get that client to sign on the dotted line, you gave them a 10 pound a month discount for the first six months.
So, month one was actually a hundred pounds for the sale.
Less:
30 pounds for the advertising,
15 pounds for the software
20 pounds for staff costs
10-pound discount.
What you're left with 25 quid.
So, it's 25 pound a month profit in month one then, because you don't have the advertising costs, you could cut advertising.
Yeah, I know. You're going to carry on because you want more clients, right? But you could cut the advertising and certainly in relation to this cost, there isn't the advertising going on anymore. So now you're up to 55 pounds a month for the next five months. Then it goes up another 10 because you no longer have the discount.
But in order to get that far, you've got to make sure that you deliver on the promises that you gave that client. Otherwise, if not, they may leave. And if it's that bad, they may even demand a refund.
So now what if I told you that for most business owners, a simple exercise that takes no more than an hour could save you 10% of the total costs of your business.
So, let's say you are a business turning over 200,000 a year. A typical service business works like this. A third of everything goes on costs. A third of everything goes to staff, leaving a third for profit. So, if a third of that 200,000 is running costs, then that is nearly 67,000 a year.
That's the figure we can save 10% off so 6,700 pounds per year in potential savings. Now I'm pretty confident if you follow these steps, you could save. If your business is like that, you could save 6,700 a year or just short of 560 pounds a month. What's more is once it's done, it's done and it keeps paying you over and over again.
It's not like a client. You don't have to do any more work on it. You don't have to make sure you deliver on any promises. You literally make the decision. You cut the cost. Done.
Now that's the equivalent in this circumstance of having 22 yes, 22 new clients without having to do the work. Okay. 22 new clients.
So, this is step two in our leaky bucket program. --Step one's mindset. If you're interested by the way--
STEP 1:
All you have got to do is go and download the last three full months' bank statements, credit cards, all the business accounts that you've got within your business, where money goes out, where you pay for costs.
STEP 2:
You need three colored highlighters. Or you need to get this into Excel or something. And use three different colors, but let's just go old school, right? Pen and paper.
You need three colored highlighters. You’re going to highlight in 3 Diff Color per Category.
Part A Highlighter 1-these are the costs that are essential to the business. You cannot operate without these without causing significant disruption to your business in either the quality you deliver, the speed of which you can deliver or you're going to end up with people canceling because you're going to take something essential away. We're talking about those essential costs. They've got to stay set essential.
Part B Highlighter 2- what you're going to highlight is optional costs. Okay. Those that you think, you know what? I could put an argument forward for these, but they're not essential, but I can put an argument forward.
Part C Highlighter 3- is just not needed. Now the not needed ones. These are simple guys. You just cancel them. You just stop spending in this area. Now it's not easy. but I've got a little trick where I can help you with this. I'll talk about that in just a little minute.
Now, go through and just add up the total in each of these areas.
Now, the essential ones, all you have got to do is just do one quick review. Just whip through that list. Just have a double check. Is that really essential? Would the quality of what you deliver be severely hampered without it, or would you have to go and spend more than the cost of let's say some software.
If you cancel that software, are you just going to end up spending more on staff time because you don't have that software anymore. And therefore, it's not really a cost saving, right? It looks like one, but actually in the big picture it is not.
Now the optional category. This is where you win big.
If you hear the word “optional” this means like add-ons, choices, maybe even luxury. This is a bit of a problem because we're not talking about that type of optional. We're talking optional as in, “do you want it or don't you?”
Let's just look at this a little bit deeper.
If (sales-costs= profit) and profit can either service debt, be reinvested or pay you then what if you've got no debt?
You're not going to service debt you don't have. What if you don't need to reinvest in the business? What if everything's all just nice and hunky Dory and it's all good? Then actually profit is how you done well get paid. But if you are choosing to take and spend on optional costs, then you are lowering your profit and actually you are lowering how much you get paid.
So, would you rather spend a hundred pounds a month on a piece of software or pay yourself a hundred pounds more?
Now I know what I'd rather do.
So, let's just go to that optional list again.
Write down these key areas.
This is going to take a little bit of thinking, but it's not too hard...
How much money do you need to take from the business for you to survive?
Now, when I'm talking surviving, you pay the bills. There are no luxuries. There's no like sky TV. You're not having holidays. There's no brand-new car that you've got finance on. There's no flash!-look-at-me-Christmas or anything like that. You need food to eat. You need to pay the bills.
Done.
How much do you need if you want to live a comfortable lifestyle?
So, this is, you can pay the bills, you can go to the cinema, you can go on some shopping trips, you can get nice gifts and that for birthdays and Christmas, you get to go eat out.
You got a nice car. Maybe it's secondhand, like, you know, not brand new. But you got a nice car. Write down how much you think you need to earn to have that comfortable living style.
The last one: Financial freedom. What does the amount look like monthly for you to have luxury living?
I mean, like. Not lottery, win type style, you know, actually, we are choosing, we're going to go and buy nice good quality groceries. Go and do that hobby that I couldn't do. Maybe I, golf or whatever, was too expensive and I loved it, but I had to give it up. A nice car, the car you choose to have, not the one because it's practical and cheap to run or whatever. The car you want to have. The “we can throw a wild birthday party for our child because we want to, and because we can.”
Write down what that looks like.
So now you've got three key monthly amounts: your survival income, your comfortable living income, and your financial freedom income.
Now just write down what you currently take from the business.
I put money on it so that you aren't where you want to be. The chances are, whichever level it is, you are trying to get to the chances are you aren't there. But the great news here is that you are just about to make. Now what looked like some tough decisions, just a few minutes ago. You've just made those decisions one hell of a lot easier.
So go back to that options list. Just review that list and just go actually, how many of this options list are options that I really want? How much can you eliminate? That's going to get you closer to your next level of personal living. I've done this process myself, and I've done it with so many clients and it is mind blowing how much money is simply being wasted.
Look at the example above I guarantee is usually there is 10% and the example above that's 560 pound a month for an hour of my time. Now I'd take that. So, the bad news here is that you've been letting money slip through your fingers. The great news, however, is that you can now do something about it.
And this is what frustrates me. 80% of people. So, I'm talking to most of you listening now, you won't actually go and take some action, just please do. Just go and put an hour in your diary now. Set it aside, get the bank statements ordered, right? We're not asking for the current months. If you're listening to this now, like just go and get the last three, four months' worth of bank statements for the business.
Get them printed, get them saved, whatever you need, get everything ready, order some highlighters. If you don't have highlighters order them now just make everything as easy as possible. Put some time in your diary for one week from today. Just put some time in there. You just need an hour. But put two in, just to make sure in case you've got to travel, you don't want to have excuses.
You'd rather find a spare hour now. Just stick two hours in, and review the cost. Follow the steps that I've given you. Trust me guys, this is big, it really, really saves money. And best of all, it goes straight in your pocket.
Don't be like the 80% break the mold be the 20%. And I'd love to hear your wins from this exercise.
So come find me, join me on Facebook in the THRIVING BUSINESS COMMUNITY on Facebook, come along, click join. We'll get you guys in and then let me know how much you manage to find that's completely leaking from your business and even better.
If you can tell me what you've now doing with that money personally, how much it's changed your life. Ah, I'd love it! I'd love to hear from you.
