How to Make Budget Reductions
Budgeting is a key part of business, and any businessperson who fails to maintain a reasonable budget will soon be out of business. Reducing your budget is often a necessity, especially in difficult economic times, but it is important to make smart budget reductions and not just cut everything in a panic.
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Instructions
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Consult your accountant and other business associates to make sure your account sheet is an accurate listing of all your expenditures. Knowing your budget means tracking all of the money you spend, not just what you think of initially.
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Organize your list of expenditures in order of cost, from highest to lowest. For example, if your highest expense is the salaries of your graphic design department, put that on top. And if your lowest expense is office supplies, put that on the bottom.
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Go down the list item by item, and give each item a ranking of "F" for fixed costs, "R" for reducible costs and "O" for optional costs.
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Rank an item as "F" for fixed cost if the amount is non-negotiable and required to run your business. For example, if storefront rent at your current location costs $2,000 per month, that amount can't be changed without incredible hassle.
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Rank an item as "R" for reducible if the item is necessary but could theoretically have savings applied. For example, some marketing is always necessary, but there are many options for marketing and some are more cost-effective than others.
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Rank an item as "O" for optional if the item is not strictly necessary. For example, a free cruise for your top seller is a nice incentive, but it is definitely a perk rather than a standard business item.
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Focus on items toward the top of the list with an "R" or "O." You should bring down your big reducible costs by spending smarter, and you may need to cut some of your biggest optional costs.
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Tips & Warnings
Realize that if they get too pricey, even some fixed costs can be changed.
Don't automatically cut all optional items. Some optional items toward the bottom of the cost list (such as free coffee for employees) may have a value to morale that far outweighs their small cost.
