If you have $5000 of business expenses every month, you need to bring in $5000 to break even.
If you decrease that to $4000 of expenses, you can go for a hike every afternoon instead of working, or drop that indecisive client, or pay yourself $1000 more.
We spend so much time thinking about how to bring in more revenue that we often forget that minimalizing our expenses is often one of the fastest ways to minimalize our businesses.
Here’s how I go about doing that.
Every month when I do my bookkeeping, I look at my previous month’s expenses line by line and for each one I ask myself:
- Is this expense making me more revenue than it’s costing me?
- Or is it providing me with some peace of mind that makes it otherwise worthwhile?
I actually make a note beside every expense, answering these questions. If the answer is no, I cut it out.
Sounds boring and stupid and you’re going to skip it? Ya, it can be a bit boring, but it can be very powerful.
You don’t have to go back through your whole year – just start with last month and do it moving forward. You may even just do it every 3 months.
Sometimes it can be difficult to know if an expense is helping you make more profit or providing you with peace of mind, but the exercise is still very worthwhile.
I’ve saved myself many thousands of dollars every year by asking these simple questions, because they force me to really think about where my money’s going.
Here are the expenses I’ve recently been able to cut:
- Office. I’ve never had my own office, but I did rent a desk at a co-working space. This can be a good investment for some people, but was unnecessary for me right now, so I cut it.
- Adwords. This exercise forced me to take a closer look at my Adwords, and I removed the ad groups that weren’t doing well.
- Penalties. I’m pretty awesome at paying bills on time, but I had missed a couple of credit card payments in the past year that resulted in some interest payments, which caused me to implement a foolproof system for making sure they get paid on time from now on.
- Unused services. I subscribe to a number of online services that help me run my business. Most of them are really helpful, such as web hosting and Aweber for email management, but there were others tools for competitor research and keyword research that I haven’t been using all that often these days, so I cut them off. I can come back to them when necessary.
My business is already quite minimalistic, yet this process is still helpful. It gets even more useful as a business gets more complex.
Your list may be different, but when you do this exercise I bet you’ll find some unnecessary expenses.
You can do the same thing for assets. Do you need an office? A company car? The newest iphone?
For each proposed asset purchase, ask yourself the same two questions: will it make me more money than it costs? Or will it give me sufficient happiness for the cost?
In the next lesson, we’ll ask similar questions of our product/service offerings.