Episode 33: Saving money, and more money… in business

August 23, 2021

With the current economic climate, and off the back of our most popular episode, today we are looking at ways to save money in your business to either reduce your costs or increase your cashflow. There are so many things you can do every day, week or month within your business to regularly impact your cash flow and put you in a better cash position. Part of managing great business finances is to know what you are spending your money on, always. And, where possible how to save some of that money! This is a short snappy episode that will give you 5 actions you can complete today to get more cash back in your pocket.

Podcast Transcript Available Here

Duration: 16:50

Trudi Cowan: Hello and welcome to another episode of Financial FoFu in lockdown, yay. I’m Trudi Cowan, Sarah Eifermann: Im Sarah Eifemann Trudi Cowan: And today we're going to have another chat about one of the topics that is actually proven to be the most popular with you guys. Sarah Eifermann: Our most popular. Trudi Cowan: So our most-watched episode was about saving money and more money yes so today we're going to have a chat again about saving money, but this time we're going to have a bit of a chat more on a business, slant yeah. And so we've come up with six things that you can do to reduce your expenses in business and to try and end up with more cash, in your hand. The first thing that I think is something important to do and probably people don’t necessarily do is to review your direct debits. Yeah, we all have money coming out of our business on a regular basis for various types of expenses. The one that's biggest for me, is Software. And a lot of my software expenses come out on a monthly basis. And if you don't look at it over the course of a year, it's very easy to not realize how much money you're actually spending on some of these products. And so I find it really useful to stop and review these from time to time from a couple of perspectives. 1 am I paying for two different products that actually do the same thing or have some overlap, very similar. Yeah, in what they do, in which case, do I need both. And can I upgrade one of them downgrade another and save some money in that way? Yeah. So I find that really useful. Another thing sometimes you find that you're not actually even using the product anymore at all, but you're still paying for the subscription just because you've forgotten that it's even Sarah Eifermann: Haven't canceled it yet, Trudi Cowan: Coming out of your account, and I have been called out on one of them was actually only come out once a year, but it was on the direct debit didn't realize that it was coming up for it, and the money was taken out before I could even think about the fact of and I haven't used that product anymore. So it's really important to be aware, of the products you have signed direct debits for. and to be reviewing those expenses. Sarah Eifermann: The other one is with something like software or anything that you buy on a subscription basis is whether or not you're paying monthly or annually. Sometimes you take a monthly option to try it out, test it and see if you're going to use it and then you just stay on the monthly and it's usually 25% dearer to stay on the monthly option than if you buy it annually so if you do have the cash flow available you know that you're going to actually need this piece of equipment, software, whatever it is, maybe look at buying it annually to save cash when doing so. Trudi Cowan: Just a tip when you're doing there, don't convert them all to annual in the same month. Otherwise, every year that is going to be a little bit more expensive, make sure you spread them out across the year, and pay for one in January and the other in March, and so on. Sarah Eifermann: Now, Trudi, you were telling me that you have some clients actually put a software basis in entry into their bookkeeping program individually so they know exactly what they're spending on each product, Trudi Cowan: Yeah that's right so you adjust your accounting books your settings so that you might have a line for Adobe, and another line for office 365, and another line for Canva whatever they're using, and that makes it really clear and easy to see how much my spending each month and over the course of the year. How much am I spending on a subscription, I just look at who am I paying or subscriptions to rather than going into one account and sort of reviewing a big lumpy. Number. Yeah, yeah. So that's tip one. Tip two, get your tax done. Yeah, look, we're not that far into the new financial year. And some of you that are really here might have already had your tax done. I'm sure there are many of you that haven't yet. And look, the reason that this is a tip is that some of you will have tax refunds. Yeah, sitting there, you know, not all of you so this isn't gonna work for everyone, but some of you will have a tax return in your tax return. So, if you get it done now, you can get it lodged and get that money back into your pocket where you can be using it better in your business. Sarah Eifermann: It also allows you to plan for what potentially your installments are going to be for the next financial year, Trudi Cowan: And that's a really important point. So, most businesses would be paying a quarterly tax installment. And that's actually based on the last lodge tax return. So, if you've had a really good year or even a really bad year that is then reflected in your tax installments for the following year, but it only happens once you've launched your tax return. Okay, so if you haven't launched it yet, your tax installments are still going to be based on how you performed in 2020 Yeah or the year before 2019. To date, so it could be really out of date in terms of how much your installments are. Sarah Eifermann: Especially if your income has dropped as a result of COVID You may, may actually not need to pay the larger amount of tax or installments that you're paying now because your taxable income will effectively be less so there is an immediate return. Trudi Cowan: Oh, exactly right as soon as it comes BAS time, your BAS is going to be a little bit less because it was so much higher so there are two really good reasons to go and get your tax organized. Sarah Eifermann: So, this tip for me is not necessarily cashed in hand saving tip, but it's more a cash flow management-saving tip that I actually personally pay my installments monthly. I find that as a better way to manage, I don't pay my BAS monthly just my PAYG. Yeah, but that, that means I don't have this huge bill at the end of each quarter and therefore I don't have the stress of, where am I going to find that money to pay that as well. Trudi Cowan: And look I've actually had one of my clients, put their GST on monthly as well, just because for them a lot easier to pay a monthly smaller bill than to get to the end of the quarter and had this big massive amount of cash they had to pay. Sarah Eifermann: And if you get behind you may only get behind one month, not three it’s a big difference. So it's just about changing those behavioral habits again we're always talking about them. Trudi Cowan: Yeah, so if you do want to look at, switching up you're, your reporting to the HGH on monthly basis have a chat with your accountant about what he can do, and how that might improve your ongoing cash flow. Sarah Eifermann: Absolutely. All right, number three, Trudi Cowan: Calling your debtors. So, debt is other people that owe you money. You've sent out an invoice, they haven't paid you yet. And I'm willing to bet there are lots of you that I've got people out there that those invoices are now overdue. So get on the phone, get on the email send out reminders, start speaking to your clients and your customers and reminding them, you owe us money, it's overdue, or even it's close to being due. We need that money please pay us now. Sarah Eifermann: I would like to add to that before you get to that point where people owe you money, so very strong boundaries in terms and conditions, with your invoices so that doesn't happen in the first place. And then if you do need to chase. I call in your debtors, you've got a whole framework in place that you can actually rely on and that other business or person knows this is how these guys operate. And the other thing I would say with that if you're finding that you're not getting anywhere in calling in your debtors, don't be afraid to use debt collection services like a collectible. Yeah, it's relatively cheap for you to use, but it ends up getting that cash in much faster than you would if you're on your own, Trudi Cowan: It's better to get 90% of the cash and then none of it at all. Exactly. In terms of the terms of condition, there are actually two that I have in my own agreements with my clients, and one is that I can charge you interest. If you're more than 30 days late in paying me, and I can stop doing work for you. Yeah, if you're more than 30 days late. So if you've got a client is paying you. Why are you doing more work for them just building up your own liability? Yeah, they're getting a great benefit out of it, but you're not getting any cash flow, right. So, you need to be willing to stand up and say to your clients that, okay. You haven't paid me so I can't actually afford to be providing you more services until you get up to date with your bills. Sarah Eifermann: Yeah, absolutely. Number four, review your large expenses. Trudi Cowan: Here look every business has some really large costs and you know depending on the nature of the business they're going to vary so product business, it might be purchasing the goods in or the inputs into the products that you make. For me it's insurance is one of my really big ones. So review how much you're spending on these large expenses. Find out. Can you renegotiate the amount? For example, I use an insurance broker who checks every year whether I'm getting the most competitive rate for my insurance, and he's always reviewing and advising me that, yes, that's the best rate or we probably get you a better rate if we switched it to a different provider, you can do the same thing with all your other inputs is there another supplier that can be supplying you the same good, or the same material that you use in your business but at a better rate, or even it might just be on better terms. Yeah, you might just be able to switch from someone that required payment on receipt to someone that gives you 14 or 30 days to pay, improved cash, and improve how much cash you've got in your pocket right now. Sarah Eifermann: Yeah, exactly. One thing I wanted to point out with insurance premiums, is that if you take the funding option from the insurance company, it's usually at a 10 to 15% interest rate versus insurance premium funding that someone like a mortgage broker can offer your own asset finance broker, which is usually 5%, so you end up saving 10% of the cost, give or take on the deal so if your insurance premiums and the cost of funding them is 50k It's five grand. Yeah, a lot of money is a lot of money. It's a lot of money back in your pocket, Trudi Cowan: But just in terms of funding the premiums that are also another way to help spread the cost exactly, Sarah Eifermann: And then you can make a monthly payment on them as well right so you get all of the renewals drawn to say on the first of July, your funding comes through, and then you just make monthly or you make 11 monthly repayments 10 monthly payments, sorry. Yeah, they do make it short, to make sure that the policy is paid before the end of the term. Yeah, but that's, that's a great way to fund it, it's much cheaper it's affordable. It's all about managing your cash flow right which ultimately gives you more money. Trudi Cowan: Yeah. So definitely look at the largest expenses on your books and find out if there's a better way or another way to reduce that cost for you. Now, number five grants. Yep, we would all be very familiar with grants at the moment there are a lot of COVID grants, floating around the state-federal council level. But what's important to note is that grants aren't just a product of COVID grants have always existed, and they've always been available. So don't just look at the COVID ones, have a look beyond that, and what else is available for you and your business to help fund some of your expenses or help to provide some support, Sarah Eifermann: Where you're going with business right you may have a new unique product that you're wanting to develop there are research and development grants available. There are lots of different things that are out there. Trudi Cowan: There are some export market grants that are around Victoria that have got a digital adaption one just to help you get started using more digital products, I've seen grants targeted at women. I've seen them targeted at certain industries or certain types of innovation. Yeah. And so definitely do your research and see what's available. And don't just look at the state, a lot of local councils offer some really good support. And then, you know, there might be smaller grants but that might be all you need. Right now, Sarah Eifermann: Well I have been doing a lot of work with our local council for businesses in the area that have requested business planning where they would never normally have had the funds to pay for business planning. Yep, and the amount of growth, they've actually had and the success they've generated by doing something and the clarity that they get has enabled them to reach their volume their turnover so isn't that what they're in business for Trudi Cowan: Exactly right, so make sure you, you're jumping on all those different websites to try and find what money is actually available to help support your business, not just COVID, but beyond that as well. Absolutely. Now, the last tip is, review your pay now. Sarah Eifermann: Maybe it should have been two, five, maybe through full well maybe even number one. Yeah, because if you look at reviewing your lodge expenses you usually have to go to your p&l which is your profit and loss. That's right so that you can actually see what your largest expenses are and when I do business with clients. That's the best place I usually go, yep, because we find out where you're spending your money and what you're spending it on it tells us how you're running your business. Yeah. And those large expenses sit in your profit and loss statement and if you don't know what we're talking about go check out one of our previous episodes. That explains it all for you on what is the profit and loss and how to read one. Trudi Cowan: Exactly right. So, look, when you're reviewing your p&l go through each category of your expenses, how to think about whether it makes sense that you're spending that kind of money on that particular line item. I had a client recently that we went through the p&l, and I was spending, I can't remember the number, but some ridiculous amount of money on taking the guys out for lunch or drinks. Yep. And putting that through their books. But when you're in a tight cash flow situation can't afford to do that you can't afford to do that and it's not a necessary expense for your business. So it's a really logical place for that particular business to cut back. Yeah, and all of a sudden have more money to pay themselves some decent wages. They also had a really large stationary bill, which for the type of business that they were didn't make sense. Sarah Eifermann: So they weren't in stationary? Trudi Cowan: So having a look at three different categories can allow you to go. That doesn't make sense why am I spending $10,000 on stationery. Yep. I don't use much paper or printer ink. And so then you can dig further and one check that they were actually all legitimate business expenses and have been put in the right category, but two then gives you a cause to cut back and go, Okay, well, that's just something we can't spend money on right now any new pens for anybody until all the old pens have run out, and I did actually work in an employer at one point they did do that they basically told us all the guides for edge rolls and any, any pens that you're not using sticking back in the stationery cupboard so somebody else can be using and not thrifty. You don't need 10,000 pens in your draw, do you? right. Sarah Eifermann: And ultimately, if there are 10,000 pens in employees' drawers that business is bleeding money in unnecessary places, Trudi Cowan: Exactly right. That sensation, this is just an example right for you, it could be one of many other categories, it might be that your car, your guys are getting into lots car accidents and so your repairs and maintenance on your cars are stupidly high, or even just your repairs and maintenance on your equipment, too high and maybe it makes more sense to go and buy a new fridge rather than constantly replacing the fridge. Yeah, right. So, it allows you to start to make some of these decisions that are going to ultimately end up with more cash in your pocket. Sarah Eifermann: Yes. So, from the top, we have Trudi Cowan: Review your direct debits. Go and get your tax return done, Sarah Eifermann: Call any debtors. Trudi Cowan: Review those big expenses. You know, what's the largest thing that you're spending money on in your business, Sarah Eifermann: Check out what grants are available, not just COVID grants but across Australia at all levels of government. Trudi Cowan: Yep, and then review your profit and loss. And look, if you're still feeling a bit lost, and cash is still a little bit tight, give your accountant a call, they will have lots of tips and tricks if they know your business well they might already know where for you you need to go to try and save some money. Sarah Eifermann: And sometimes it does mean taking a haircut in certain places where you'd rather not, but it's a short term temporary thing to keep you trading profitably so that you are trading solidly and meeting your obligations and ability to pay your bills, Trudi Cowan: Yeah, ultimately, who wants to be in business if we're not making any money. Sarah Eifermann: Exactly, hello. Well, that's all we have for today's episode of Financial FoFu I'm Sarah Eifermann Trudi Cowan: And I'm Trudi Cowan.

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