In today's fast-paced business environment, optimising costs has become a key strategy for companies to remain competitive. While cutting costs can certainly help improve profitability, it's important to understand that it's not the only way to grow your business.
In this blog post, we'll explore some important points to keep in mind while optimising your company costs.
1. Understanding Your Gross Profit and Net Profit
The first step in managing your costs is to understand your gross profit and net profit. Gross profit is the amount of money left over after deducting the cost of goods sold from your revenue. Net profit, on the other hand, is the amount of money left over after deducting all expenses from your revenue. It's essential to keep track of both figures to determine the overall profitability of your business.
It's important to note that if your entire growth strategy revolves around reducing expenses, you're not really growing. While controlling costs is a critical component of running a successful business, growth requires investing in new products, services, and marketing efforts to attract new customers.
2. Emergency Funds
Another important aspect of managing costs is having sufficient emergency funds. Unexpected events such as natural disasters, pandemics, or economic downturns can significantly impact your business. Having a reserve of funds that can cover your expenses for at least 3-6 months can help you weather the storm during such times.
3. Financing Options
Small and medium-sized enterprises (SMEs) often struggle to access financing to help them grow their businesses. However, there are several options available that can help SMEs obtain the necessary funds. These include:
- personal loans
- friends and family
- credit cards
- business financing from banks or SME loan agencies.
When considering financing options, it's essential to consider the interest rates, repayment terms, and the impact on your credit score.
Personal loans can be useful for obtaining sufficient funds, while credit cards can help build your credit score. Business financing from banks or SME loan agencies can offer lower interest rates, but they may require collateral or a solid credit history.
Another financing option would be to use credit cards to pay for business expenses. This strategy can help improve cash flow and provide short-term financing for necessary expenses.
With Cardup, businesses can use their credit card to pay for business expenses, even if the recipient doesn't accept credit card payments such as:
- Rent
- Payroll
- Supplier invoices
This can provide short-term financing while also building your business's credit score and earning rewards.
Conclusion
Optimising costs is critical to running a successful business. However, it's important to strike a balance between cutting costs and investing in growth.
Understanding your gross profit and net profit, having sufficient emergency funds, and exploring financing options can help you manage your costs effectively. By doing so, you can position your business for long-term success.
Reach out to us today to learn more about how we can help you improve your cash on hand.
The above content is adapted from iMoney's webinar session at the CardUp's SME Healthweek 2023 webinar series: From Surviving to Thriving, tailored for SMEs and entrepreneurs covering all topic from finance, hr, marketing to globalisation.
