Client Journey: How to Handle Expense Pressures

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If surviving and thriving as a small business comes down to one thing, it’s cashflow: Cash going in, and cash going out. Unless you are a startup backed by major venture capital (and can therefore easily tap your investors for more funding), managing your expenses may be the most important step in maintaining a positive cashflow. 

Of course, not all costs are variable and adjustable – some overheads are just stubborn: They won’t easily be changed if cashflow drops. Our focus here is on those expenses that can be managed more effectively. 

We set out our key expense management tips below. 

Assess and prioritise expenses

The first step should be to take a look at all your outgoing expenses. Prioritise all expenses that contribute to revenue generation or are risk-related (i.e., don’t fire your accountant).

Once you have done that prioritization, your next move in a cashflow crunch should be to seek extensions for all non-essential expenses — it may otherwise be difficult to reduce overheads over a short period of time. 

Optimise and automate

For some core expenses, you may be paying more than you need to be. For example, many small businesses could benefit from changing their energy tariff to one based on time of use. Inertia can mean that many businesses are still on the non-optimal plan that they initially signed up for. Relatedly, businesses should consider an energy efficiency audit to work out how they can better save energy with their existing appliances and equipment. 

In some cases you may be subscribed to relatively expensive subscriptions, where cheaper or even free options are available. For example if your invoicing needs are modest, you may be able to use one of the many apps offering free invoicing, rather than full accounting packages. 

Data can be useful here as well: For example, an analysis of stock may lead you to determine that you are holding more inventory than necessary. 

Another area for improvement is automation: It may be that you are carrying out some tasks manually that can be easily automated. For example, you might be able to automate initial customer service responses through AI chatbots. 

Renegotiate contracts

Most suppliers don’t want to lose a good customer. If approached early enough, they may be open to renegotiating contract terms. Some matters to consider include: 

• The possibility of a bulk discount, or even a retention discount.
• Agreeing to a longer-term contract for a discount. This may be particularly effective with commercial leases. 
• Bundling products where possible, instead of having multiple individual subscriptions. 
• Debt refinancing. You may be able to refinance any high-interest debt at a lower rate. 

Address headcount

Labour costs are one of the biggest expenses for small businesses in Australia. This includes not just salaries, but superannuation contributions, workers compensation and payroll taxes. Unlike other expenses, there is usually no easy way to reduce this. In some cases, you may need to reduce headcount. 

The first step should be to put in place performance management processes for any staff who are not performing. It is crucial to have the ‘right people in the right seats’.  

More generally, it may be worth putting a halt on new hires, and thinking about whether you can replace any FTEs with freelancers or contractors. In some cases you may be able to outsource functions to other companies (such as labor leasing firms). 

Manage your tax burden more efficiently 

Another way of facing expense pressures head on is to ensure that you have optimised your taxes. The first step here  is ensuring that you are claiming all allowable deductions. You may even want to accelerate some expenses (e.g., depreciation expense) to bring them into the current tax year and reduce your tax bill.  

The next step is ensuring that you have claimed all available tax credits. 

Finally, it is important to ensure that you have the right business structure in place to minimise your tax bill. Many small businesses in Australia have found a trading trust an efficient way to do this. 

Actively manage expense pressures

It can be easy for businesses in a cashflow crunch to focus on revenue, without paying proper attention to the various ways in which they can save money by better managing their existing expenses. A proper audit, optimization, automation, headcount reduction, and strategic tax planning can all be ways to better manage the expenses of the organization.