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Twelve Ways to Improve Cash Flow by Controlling Expenses

Share current LOB: SmallBusiness

One of the most effective ways for you to improve cash flow is to control expenses. Business owners agree the best single action they can take to save their businesses money, improve cash flow and stay on solid ground is to create and adhere to a monthly budget. So it is no surprise that according to SunTrust Business Owner Research, 67 percent of owners have implemented expense budgets to improve cash flow. Cutting costs and managing margins is generally a more predictable and controllable way to maximize your firm’s profits than growing sales, particularly in a tough economy.

Business owners and their staff should recognize that cost control is a high-return activity: but more than 51 percent say they have found controlling expenses to be challenging over the past twelve month. To aid in cost-cutting efforts, SunTrust shares 12 actions you can take to manage expenses and generate more cash and profits in a short period.

Cost-cutting strategies

The first set of actions you can take relates to cutting expenses. Challenge every expense and assume your business is spending too much. Here are three specific actions:

1.  Know your strategic costs. You should understand the things that make and save the most money and try to aggressively cut everything else. Costs directly linked to product quality, excellent customer service, profitable new sales or your defined competitive edge are strategic. You should consider everything else overhead.

2. Never let expenses become routine. Periodically dive into non-strategic costs to find savings. Search a couple of nonstrategic expense accounts each month for expenses you can remove or slash.

3. Review all expenses and costs. According to a study of the 80 most productive companies in the world in the book Less Is More: How Great Companies Use Productivity as a Competitive Tool in Business, profit-oriented executives ask one simple question before they make any decision: “What’s the good business reason to do this?”If there’s no easy answer to this question, reconsider those costs.

Build a smarter budget

To make solid determinations as to what expenses can be eliminated, you should understand and track monthly expenditures. Here are three actions you can take related to effective budgeting:

4. Create a monthly budget, and stick to it. You can’t manage what you can’t measure. Although two-thirds of owners agree they are responsible for cost control, many don’t have monthly budgets, according to a report of small business owners by the National Foundation of Independent Business. According to Bob Fifer, the author of the book Double Your Profits, if you want to save a lot of money in very little time, set a budget. It can save you a significant amount of money every month.

5. Start your budgets with zero. Profit-oriented managers create “zero-based budgets,” where they start with a clean slate every year. Spending a weekend adding up all of your monthly costs and looking for duplication, waste or purchasing savings may sound boring, but it likely will identify 10 percent cost savings.

6. Use your gut. One key to setting budgets is to avoid “analysis paralysis” and consensus when setting cost-cutting goals. In terms of saving you time and money, a back-of-the-envelope cost-cutting goal for your budget from the top down beats a detailed budget based on last year’s expenses, excesses and faulty assumptions. If you cut too far, you will know pretty quickly and can adjust.

Compare your expenses

Small business owners build strong relationships with their vendors and service providers, but that doesn’t mean they shouldn’t consider benchmarking and bidding out all of their top expenses. Here are two related strategies:

7. Bid out costs regularly. Any cost that does not go out for bid is a wasted cost-saving opportunity. Don’t accept price increases without seeking competitive bids. Even telling a supplier you are considering putting work out to bid can generate cost-saving ideas.

8. Benchmark your costs. Ask your peers where you can find a better deal. If they cannot buy your product or help you find customers, they can often help you shop. Find out where your competitors buy and what they pay.

Get solid control

In addition to cutting expenses outright, building a budget and consulting with your peers, controlling expenses often starts with the right systems in place. Here are four strategies to obtain improved cost control:

9. Approve all expenses. Set approval levels by expense category and employee. The secret is doing this without spending a lot of time. One way is to use corporate credit cards equipped with sophisticated, employee-specific expense-control features. Another is to require employees to ask permission personally, or in writing, on high-value expense categories.

10. Automate expense controls. You can better control most of your company’s expenses by spending a little time using basic online banking tools and controls. Set the authority to approve all expenditures, and restrict others using automated entitlements, authorization and spending limits, particularly for strategic or high-value expense categories.

11. Track expenses regularly. Create a flash report to directly measure cash, profits and net worth. Watch them monthly, weekly or even daily. Turn your accountant into a “virtual CFO” who can generate the regular cash flow, expense budget and profitability reports you need to manage profits. Give your CPA selective access to your online financials to efficiently generate the reports you need to manage costs and profits.

12. Use online and real-time tools. Your bank can help you set-up a range of alerts and reminders related to cash consuming transactions with online banking, bill pay, tax payment, direct deposit, payroll and cash-management systems. These cost-control measures improve visibility related to expenses and allow you to gain better control over tomorrow’s profits.


Less Is More: How Great Companies Use Productivity as a Competitive Tool in Business by Jason Jennings, 2002

National Federation of Independent Business Annual Report, 2011.

Double Your Profits: In Six Months or Less by Bob Fifer, 1995.

About SunTrust Business Owner Research: SunTrust surveys small business owners and advisors as part of its ongoing business seminars and symposiums. The small business owners attending these events include both SunTrust client and non-client business owners and are representative of the broad spectrum of businesses located in the SunTrust markets. The research cited in this report is extracted from these 5,425 small business owner surveys collected between 2007 and 2011.

This content is educational in nature and is not an advertisement for a loan or business solicitation. It does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

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