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How to Decide Whether or Not You Need to Cut Expenses

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We’re in the middle of the year, which means it’s time for a mid-year review. Part of a mid-year review includes looking at cash flow and determining whether or not it’s time to cut expenses.

If you’re like most business owners, you probably made some major investments in the beginning of the year in an attempt to grow your business. Maybe you purchased new software, hired contractors or started investing in other things.

Now is the time to review some of these investments and see if things are going. More specifically, you’re going to want to assess the following:

  • If you’re getting the ROI you need.
  • You need to give it more time.
  • Need to cut expenses.
  • If there are other options that will get the same or better results for less money.

What You Need

Before jumping into what to look for, it would be wise to take out your banking statements. You may also want to fire up your accounting software and possibly set up a meeting with your accountant for some outside help.

If you have other team members, like a business manager or partners, get their take on some of these things as well. Sometimes they have valuable input that can help you make the best decision.

What You’re Ultimately Trying to Do

Ultimately, you’re really just trying to get your cash flow under control. Sometimes that looks like continuing to spend money to get more profit and other times you may need to cut expenses.

The reality is you constantly need to be keeping an eye on the numbers in your business. What made sense in the beginning of the year may not make sense now, and it’s your job to identify that and cut expenses if need be.

Option 1: You keep the investment.

The first option looks like keeping your investments going instead of cutting expenses. This is the route you’d take if you’re seeing or starting to see the return on investment.

Here are some pretty good indications that you should keep your investments instead of cut expenses:

  • The investment is somehow paying for itself already.
  • The investment isn’t just paying for itself, it’s making a profit for you.

Sometimes a profit looks like having more time so you can get more clients. Other times it’s more direct – like your affiliate sales on your website are more than the cost of driving traffic to said website.

Option 2: You need to give it more time in order to decide.

Sometimes you don’t have enough data at the six-month mark to determine whether or not you need to cut expenses in your business.

For example, maybe a specific software isn’t giving you enough ROI yet, but you also just started a new strategy to correct an issue a month ago.

At this point, you don’t have enough data yet to determine whether or not you need to keep the investment or cut the expenses.

Depending on the type of investment, you may need to give it at least a few more months to see whether or not it’s worth keeping.

Option 3: You cut expenses.

If an investment you made earlier this year is clearly not working, and if you haven’t made any changes to it because you discovered a problem, then it’s probably time to cut expenses.

There really is no point in continuing to waste money if you’re not getting the return you need. This just leads to cash flow problems and not enough profit.

Additionally, if you know something isn’t working, you can cut that expense and then use the money to put toward something that is working.

For example, you may not be having much luck with Pinterest, but you’ve noticed Facebook ads are really working out for you.

The reality is it does take some experimenting and tweaking to see what’s working and what’s not in your business. Additionally, what works for one person may not work for another. Sometimes it makes more sense to cut expenses that simply just aren’t working for you and then putting that money toward things that you know are (or keeping the profit).

Option 4: You find less expensive options for the same or better results.

One thing I’ve noticed this year is that while my expenses have gone up in terms of hiring contractors, they’ve also come down in terms of business software and services.

I have been able to find the same if not better services for a fraction of the price for all of the following:

  • Web hosting – Cut expenses by over $250 for better service.
  • Landing pages – I cut expenses for this completely because my email marketing system now offers it. Meaning my email marketing system now makes a profit in the amount of money it’s making me and saving me. That’s $300 saved.
  • Liability insurance – I have found a better deal thanks to referrals and research my colleagues have done. While nothing is for sure yet, I may be paying a fraction of what I paid last year.
  • Healthcare – I cut expenses by $200 each month by switching to a health sharing ministry instead of having traditional health insurance. This isn’t technically business, but it is something business owners worry about.

So what do I do with all this money saved from cutting expenses? I can either reinvest it or save it. In my case, the money I saved from cutting expenses like web hosting and landing pages allowed me to pay for webinar software I did actually need and have begun finding more success with even though I just got it.

The webinar software allows me to scale which leads to more money, whereas the expensive web hosting and landing page service was just costing me money.

Final Thoughts

As business owners, we’ve always got our eyes on the dollar signs to ensure we’re getting a return on our investments. Make sure to regularly check your business budget to see if you need to cut expenses.

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Millennial Finance Expert and Writer
Amanda Abella is a Millennial Finance Expert that helps people understand their finances and eliminate all bad debt. She wrote a book, Make Money Your Honey. It is a powerful guide on how to have a better relationship with work and money. You can actually start building an extremely profitable business around the things you’re passionate about.

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