I felt an anxiety creep up within me.
Should I buy the Search Engine Optimisation software that I so needed for my business, even though I was close to broke?
What could I do? If I didn’t buy it, I might potentially be unable to serve my current clients, nor get any future clients.
This was scary.
And I didn’t know what to do.
You might be close to being broke
Figuring out how to control your costs in business is no simple matter, especially when you’re close to the edge.
And if you’re reading this, I’m assuming you’re close to the edge.
Here’s what I did to help myself turn the corner.
Holding the tension between an investment for the future, and a quick budget cut
Being forced to look at your budget is not a bad thing.
But what you need to realise is that you might need to hold the tension between being a leaner (and meaner) business, or being cut too close to the bone.
In my first full year of business, I made an average profit margin of 25%. But in the second year, being more confident, I made bigger investments into our products, and ended up earning just about 1% in net profits.
Did I not control my budget?
Here, there are no simple answers as to how to decide what to cut.
Be clear what your top priorities are
But before you even start cutting back, the priority is to figure out where your priorities lie.
My entrepreneur friend loves telling me,
It’s not about doing many things.
It’s about doing the right things.
Going through an exercise like Shane Melaugh’s Top Priority Exercise (you can duplicate the Notion template through this link) can help.
The most important questions to ask yourself are:
- What’s working at the moment? What’s not?
- What’s giving me energy? How can I stop doing the things that drain my energy?
- For example, you might hate admin. Whilst you’re cutting back, it might be worth thinking about just paying $25 per hour to an admin assistant to help you.
- What’s my top priority?
The purpose of figuring out your top priority is so that you’re clear about what’s the one and only one you can afford to focus on.
Often, in business, the problem isn’t that you do too little.
It’s that you do too much.
Being able to focus on just one thing allows you to rapidly grow that business to a scale and size that allows you to eventually move onto other things.
But the priority is still to focus on the first and top priority.
Only then can you tell whether what you’re spending on is actually serving that priority.
After you’re clear what you’re going to focus on, the first important step is to realise where you’re actually spending that money.
Understand what’s working in the business, before you cut costs
Here’s a simple question.
Do you know what’s working in your business?
If you don’t, cutting costs may leave your business in a poorer shape than it is.
Fix your leaky business
In July 2023, after a particularly hard month where I found my business earning all of $400, I asked my friend for advice. He was a business owner who had expanded into multiple countries.
His first question?
Do you want to make money or not?
Looking at the books that I had published, I didn’t know what to reply.
Whilst I could say that the answer was undoubtedly yes, it was shocking to see how I had spent a grand total of $25,000, with no idea how to earn the money back.
You might experience the same.
You might have some passion projects that you’re throwing more and more money after.
But deep down, you know that you’re not going to earn money from it.
Whilst money is not everything, if you do want to survive, it is quite important at the beginning stages of your business.
Know where your money is going
There’s no need for the fancy apps that Google Ads is probably feeding you, right now. You might see accounting software like Xero, and wonder if you should get it.
Honestly, it might not.
If you’re not earning more than US$100k, you might be better off with just an Excel spreadsheet.
But you need to record down diabolically, where every cent is going.
Figure out where recurring payments (like subscriptions) can be cut
As a web agency, we realised that one of our biggest cost contributors was the software subscriptions we had to different hosting providers.
We managed to consolidate those and place them under one, getting a bulk discount.
Don’t just save money, but save time
When we were first tighter on our money, we decided to cut back on our rental to a coworking space. For a week, we tried working out of public spaces like the library, and we slowly realised that it just didn’t work.
We were getting distracted, and we were getting less done.
Whilst we did save an initial $129 per month, it didn’t make sense if we were getting less done, thus earning even less money.
Pay yourself or your founding team less
If you’re leading a team, the most important bit is often, to pay yourself less.
You can’t possibly cut first from your staff, and then still expect them to follow you.
Figure out how to extend credit terms, especially with employees
If you have staff, they might be by far your biggest expenditure.
One of the easiest things is to talk to your staff and tell them about the situation you’re in. More often than not, from my experience, they will understand and be willing to extend a credit term where they can be paid later.
Play the long game
There are no get rich schemes in business.
And whilst the current state of things might be tough, forcing you to cut back, grit through.
Things might not improve. But you will get better.