For any business, large or small, the goal is simple: grow revenue today without jeopardizing your ability to make money in the future. Easier said than done! Operating a field service business with too lean of resources and you will hamstring your ability to grow sales. On the other hand, overspend or carry unjustifiable overhead, and you’ll quickly erode profit margin and eat away at your bottom line. So how do you strike a balance to ensure your business is adequately funded? Understanding where and how to eliminate/reduce unwanted expenses can help residential and commercial service businesses manage change and remain profitable.
Examine Your Expenses
Expenses come in all shapes and sizes. Some are long term, while others are short. Some are one-time investments, while others are recurring. Some are required to run your business and others are easily avoidable. By understanding your cost structure, you can begin measuring your most valuable (and invaluable) expenses. Analyze your monthly wages, equipment costs, rent, insurance premium, material costs, marketing spend, and others. Identify areas where you can reduce or eliminate spend, without impacting your quality of service. Everyone wants to do more with less. The challenge is doing more with less, while delivering superior service at the same time.
Example – We recently added more members to our service team. Rather than investing a large amount of capital in new company vehicles – we will use our existing vehicles to ensure we do not overextend. We can revisit the investments in new vehicles next year, once the equipment we recently financed comes off the books.
Examining current expenses is just the start. Benchmarking your current spend vs. historical spend provides greater insight into your cost structure. Are there any specific areas or expenses that have ballooned over the last few years? If so, what might have caused that increase? Is it justifiable? Having clarity into expenses versus prior years help assess if and where you may be overspending. Perhaps some of these expenses were made out of convenience or luxury, while others are merely the cost of doing business.
Example – We have been using XYZ company for print/direct mail marketing and ABC company for digital marketing. When comparing 2017 to 2018, our marketing expenses have drastically increased. They both produce great results, but it may be time to shop around for other providers or consolidating both services under one company to reduce my company’s spend.
Stick to Your Budget
One of the best ways to bring discipline to your spending is to establish a budget – then stick to it. Many businesses lose control of their expenditures when they loosen the reigns or stray too far from plan. Sure, your business will always encounter unforeseen obstacles and expenses that you couldn’t account for. However, building a cushion into your budget will allow you to better prepare when these challenges arise. The key is, your budget must be realistic. Creating an unrealistic budget is just as dangerous as having not budget at all! Forecast your monthly rent, utilities, payroll, and operating expenses alongside projected revenue. Use your historical sales and expenses from previous years as another barometer for your budget. Look hard into the assumptions you are making. Is that increase in sales attainable? What about the expenses you a projecting? The more checks and balances you can build into your budgeting process, the more realistic it will be.
Example – Last year we spent $XX on wages a month. With the new additions to our team, I expect payroll to increase by roughly 5% – while monthly revenues should increase by 8% due to the additional jobs we can take on.
Get control of your budget with features like invoicing and payments with WorkWave’s field service software!