Run the Annual Expenses Audit and Cut the Waste

Recently I was talking to an entrepreneur that had just finished an exercise to get more efficient with his business and reduce the burn rate. After making a concerted effort over 30 days to cut waste they now save $200,000/year. Here are a few areas to analyze:

  • Credit Cards – Start with the biggie. Credit cards are so easy — almost too easy — to buy stuff that many entrepreneurs don’t scrutinize the purchases. Take last month’s statement and make the card holders justify each expense in a Google Sheet.
  • Amazon Web Services – Cloud platforms make it incredibly simple to scale services, and scale the bill. Walk through every line item of the last AWS bill and the corresponding usage of that item (e.g. do you need all those full-time EC2 instances when spot instances might work instead? what about reserved instances?)
  • Unused SaaS Apps – With so many interesting SaaS apps out there it’s easy to sign up and pay only to not truly integrate into the business process such that there’s little-to-no value. Go ahead and cancel it.
  • Unused SaaS App Users – Many SaaS apps are mission critical must-have products but that doesn’t mean paying for more than you need. How many users of Salesforce.com do you have? Do you really need them all? What other apps can be adjusted?

Entrepreneurs would do well to audit expenses at least annually, if not more frequently, and cut the waste. Just because you need to move fast doesn’t mean you need to waste money.

What else? What are some other areas to look for savings?

3 thoughts on “Run the Annual Expenses Audit and Cut the Waste

  1. Completely agree David. I also go through this exercise whenever we’ve raised money. It’s the perfect message to the company – now is not the time to get sloppy with money. The day after you raise money, you should consider yourself a “Day One” as Jeff Bezos would put it and make sure your more efficient than ever.

  2. During the recession, when achieving these sorts of savings meant life or death for the business, we religiously scrutinized every expense. This is a great reminder. Another thing we did that resulted in even more savings than trimming our already trim operation was going the extra step of reaching out to all of our vendors and requesting a 20% discount from all of them. Nearly all of our largest vendors agreed, as did many smaller ones. Some asked for longer-term agreements in exchange for the price reduction.

  3. This isn’t just for burn. If you have the desire to sell, almost every company will be sold based on a multiple of EBITDA, not revenues. So, if you sell for 15x EBITDA, that $200,000 cost savings mentioned above just made the owners an extra $3,000,000 at exit.

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