Low-Cost Strategies for Your Small Business

Business Tip: Keeping Business Costs Low

Low Business Costs Increases Business Profits

What are business costs?

Much of business cost can be categorized into fixed costs,
variable costs, and capital expenditures. Fixed costs are
those expenses that are incurred regularly: either daily,
weekly, monthly, quarterly or annually. Variable costs are
those costs businesses incur but not on a regular basis.
Capital expenditures are those costs that are incurred when
a capital acquisition is made. An example of fixed costs
are utility expenses. An example of of variable costs are
company outings or celebrations. And an example of capital
expenditures are the acquisition of a set of new upgraded
computers for the business enterprise.

Keep more to variable costs than to fixed costs

Whenever one is contemplating to make an expense so that
the business will improve its operations, it is best to
opt for making a variable cost rather than adding a fixed
cost. The reason behind this is that fixed costs are harder
to regulate and to change because they are incurred regularly
and at a fixed rate. However, if the expense would be a
variable cost, it is easier to control and to find
alternatives for changing the expense account. One good
reason behind this financial strategy is when prices
suddenly rise due to inflation or devaluation, and if your
fixed costs are at its minimum, you can even lessen your
variable costs and also have the opportunity to find
alternative ways to lower it, by looking for another
company that provides a lower cost for the supplies or
materials you need.

Whenever possible, find a way to lower your fixed
costs

When prices begin to soar, and your business is again
strapped with many expense accounts, not only can you lessen
your variable costs, but you can also find a way to lower
the rate of your fixed costs. Whenever you find a company
that services or supplies a product that gives a lower rate
for your fixed costs, then do so. This will help the
business enterprise survive the sudden financial downturn.

Be conservative in your capital acquisitions and
expenditures

Capital acquisitions and expenditures take a lot out of the
cash reserves of the business enterprise. So, whenever there
is something new to the market and your present technology
is still usable, then do not make a capital acquisition or
expense. Usually, we are tempted to buy what is new and what
is fashionable at the time that it is released in the market.
If the purpose of a capital expense is always to keep up with
what is new, then our cash reserves may be depleted very fast
and before we know it, our fixed costs will be a burden to
us. This does not mean that we must not make capital
acquisitions or expenditures to progress our business and to
improve our operations. It only means that we need to be
practical and to use what can still be used and to avoid the
temptation of 'keeping up with the Joneses'. There is a
right time to update our systems, procedures, operations and
programs. We only need to make the capital expenditure at
the proper time in relation to what the financial situation
of our business tells us, and not according to the dictates
of newness and modernity.