Are Your Business Finances Ready for Year-End?

The Hidden Cost of Rising Expenses: Protect Your Business with Smart Pricing and Expense Management

Hi everyone, a big thank you to everyone who has been reading our newsletter! I hope that the content is providing value and support to you as you work to build the business of your dreams!

In this issue, I will focus on:

• Rising supplier and operational costs can eat away at margins, but there are two key ways to combat this: manage expenses and adjust prices.

• Regularly reviewing expenses, cutting waste, and finding innovative ways to provide value can protect cash flow and profitability.

• When paired with strategic pricing adjustments, these steps help build a resilient, profitable business.

Inflation has been a major challenge for small businesses over the last couple of years, fueled by ongoing political and economic uncertainty. Rising supplier costs, higher wages, and fluctuating interest rates are squeezing margins tighter than ever. Unfortunately, it looks like we’re not done with inflation just yet, which means now is the time to take proactive steps to protect your business.

By focusing on managing expenses and making necessary pricing adjustments, you can shield your margins and build resilience. Let’s dive into how you can take control, even in challenging economic times.

Step 1: Get Serious About Expense Management

Managing expenses is about being proactive and innovative with your investments. Every dollar spent should work toward growing your business or improving customer value. Here’s how to ensure your expenses are working for you—not against you.

1. Understand Every Expense

Take a deep dive into your expenses and categorize them. Which costs are essential, and which aren’t adding value? This clarity will help you identify areas for cuts or renegotiation.

     Pro Tip: Review recurring costs, such as software subscriptions or supplier contracts. Duplicate or unused services can add up quickly.

2. Cut Waste and Renegotiate

Regularly evaluate costs and negotiate with vendors to lower rates. If a supplier isn’t willing to work with you, consider alternatives. Every dollar saved is a dollar added to your cash flow.

3. Innovate to Create Value

Look for ways to deliver more value at the same or lower cost. For example, streamline processes, adopt cost-saving technologies, or bundle products or services in ways that increase customer satisfaction without increasing your costs.

4. Make It a Habit

Expense management isn’t a one-time activity. Set a regular schedule—monthly or quarterly—to review your spending and look for opportunities to improve efficiency.

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Step 2: Adjust Pricing to Protect Margins

Once you’ve managed your expenses, the next step is to ensure your pricing reflects the value you deliver and keeps your margins healthy. Here’s how to approach pricing changes confidently:

1. Link Pricing to Value

Rising costs mean you’re likely providing the same or even more value at a higher expense. Your pricing should reflect this. Customers are willing to pay for quality, reliability, and expertise.

2. Communicate with Confidence

Transparency is key when introducing price changes. Share with your customers why the adjustment is happening. Emphasize your commitment to maintaining quality and the value you provide. Most customers understand that rising costs affect everyone.

Example Script

 “To continue providing the quality you expect, we’re adjusting our prices to account for rising costs in materials and operations. This change ensures we can maintain the high standards you’ve come to rely on.”

3. Start Small and Test

If you’re nervous about raising prices across the board, start with a small increase on select products or services. Monitor customer reactions and adjust as needed. Incremental changes are often easier for customers to accept.

Profit First Insight: Combine Innovation with Simplicity

The Profit First system emphasizes visibility and control over your finances. Managing expenses is just as important as increasing revenue. By regularly trimming unnecessary costs and finding ways to innovate, you can not only maintain profitability but also create a lean, efficient business that thrives.

Strategic pricing adjustments combined with disciplined expense management ensures your profit margins remain strong—no matter how costs fluctuate.

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What’s Next?

The combination of expense management and smart pricing can transform your business. By cutting waste, negotiating better deals, and finding innovative ways to deliver value, you’ll have more room to adapt to rising costs. And by confidently adjusting your prices, you’ll protect your margins and maintain a healthy cash flow.

Remember, success isn’t just about making more—it’s about keeping more. Let’s focus on building businesses that are both profitable and resilient.

Adam Litster

Certified Profit First Professional and Pumpkin Plan Strategist

816-500-5779

adam@betterbizinfo.com

Visit Our Website!

Summary:

• Profit First isn’t just for struggling businesses—it’s for anyone who wants greater control over cash flow, less stress about finances, and higher profits.

• Even highly profitable businesses often lack visibility into their spending, which can lead to waste.

• By implementing Profit First, businesses can unlock even more growth and enjoy a streamlined, stress-free approach to financial management.

Achieving profitability is a milestone, but maintaining and even increasing profitability? That takes a powerful system. You might wonder if Profit First is necessary for a business that’s already turning a profit—and the answer is a big yes! Here’s why Profit First can take a successful business to the next level, with an example to show just how transformative it can be.

Why Profit First Matters, Even for Profitable Businesses

1. Gain Control Over Cash Flow

Profit First brings visibility to cash flow so you know exactly where your money is going. Even the most profitable businesses can lose track of expenses or cash flow patterns, leading to waste.

2. Increase Profits Through Simplicity

Profit First is a straightforward way to consistently boost your bottom line by ensuring that profit comes first, expenses come second, and cash flow gets tracked closely. This process can make financial management easier and more rewarding for any business.

3. Build a Business that Supports Your Vision

With Profit First, business owners gain peace of mind, clarity, and confidence in their finances. This system ensures you’re always aligned with both business and personal goals.

A Real-Life Example: A Chiropractic Practice Transformed

One of my clients, a highly profitable chiropractic practice, had strong revenue, a healthy profit margin, and high owner’s compensation. Despite this, they were spending cash freely, often unaware of where the money was going. With operating expenses already near Profit First standards, they assumed they didn’t need to change a thing.

But here’s what happened when they started using Profit First:

• Visibility Increased: They quickly discovered duplicate or unnecessary costs eating away at profits.

• Confidence Rose: With better control over cash flow, the owner felt more secure about their decisions, knowing they were building a financially resilient practice.

• Profits Improved: By trimming down expenses and adopting Profit First principles, they’re now set to achieve profit levels well above the industry average.

This client has seen a total transformation—not only in their business’s financial health but also in their peace of mind and alignment with their vision. Profit First isn’t just about making more; it’s about feeling confident that your business is set up for long-term success.

Even the most profitable businesses can benefit from Profit First. By gaining visibility, simplifying cash flow, and streamlining expenses, you’ll take your business’s profitability and resilience to new heights.

If you’re ready to make a similar transformation, Profit First might be just the thing your business needs to thrive!

Adam Litster

Certified Profit First Professional and Pumpkin Plan Strategist

816-500-5779

adam@betterbizinfo.com

Visit Our Website!

In recent weeks, we have been exploring several valuable insights from the book Surge by Mike Michalowicz to help businesses grow effectively. I wanted to take a break from that today to address a very relevant and pressing topic many of our clients have been dealing with lately, cash flow shortages from seasonal demand shifts. We’re nearing the winter season where many businesses, especially in the outdoor or home services industries tend to struggle. I would like to provide some actionable insight and suggestions to help confront these issues.

Summary:

• Proactively managing cash flow during slower months helps keep your business running smoothly.
• By building a cash reserve and creating a seasonal budget you can reduce the stress of cash flow challenges.
• A little preparation goes a long way toward helping you maintain consistent cash flow year-round.

Every business faces seasonal fluctuations, but with a bit of planning and strategy, you can avoid cash flow crunches and stay on top of your finances. Here’s how to keep cash flowing steadily even when things slow down.

1. Build a Cash Reserve Before the Slow Season Hits

Every business experiences good months and bad months, but seasonal businesses tend to experience low months for extended periods of time each year, which can really hurt. Whether you deal with a bad week occasionally, or have 3 months of low sales every year, one of the best ways to avoid cash flow issues is to create a cash reserve during your busiest times. Here’s one of the most common mistakes business owners make when times are good: When revenue is really strong for a month, the owner will often take the extra cash windfall the results and spend it. This practice of increasing spending in line with revenue often makes it difficult to bring the spending back down when revenue drops again.

Setting aside a percentage of your revenue in a designated account provides funds to cover essential expenses when sales dip. We’d recommend you work toward a reserve that covers at least three – six months of operating costs, depending on your business needs.

How to Do It:

• Set a goal for your reserve fund and commit a percentage of revenue during high-earning periods.
• Treat this reserve as an essential “expense” each month to ensure you stick with it. If you are using profit First, add an account and update your allocation percentages to include the new reserves account
• When you have unusually high revenue months (months that exceed the level of revenue you’d need to meet the business needs), transfer a portion of that extra cash to the reserve account to be used for low months/emergencies.

By doing this, you can now act as your own bank during cash flow shortages. You have cash available when you need it and don’t have to pay any interest!

2. Create a Seasonal Budget and Stick to It

Mapping out your cash flow needs over a full year helps you understand when expenses might need to be trimmed. A seasonal budget lets you identify areas where you can cut back temporarily while still meeting necessary costs.

How to Do It:

• Identify predictable expenses across a 12-month timeline.
• Flag slow months and adjust discretionary spending during these times to conserve cash flow.

3. Offer Subscription Services or Additional Seasonal Offerings

Adding a subscription-based service or expanding your offerings can keep cash flowing consistently, even when business is slow. Subscriptions create a steady revenue stream and help maintain customer loyalty. If subscriptions aren’t a fit, think about other offerings to introduce in slow months that fit with your existing business.

For example, one of my clients in the window cleaning business typically experiences a slowdown in winter. In the past, they’ve had to rely on high-interest loans or credit cards to cover operating expenses. To counter this, they began exploring winter-specific services like indoor window cleaning and Christmas light installation. Not only does this boost their income, but it also helps retain their customer base throughout the year.

How to Do It:

• Brainstorm subscription or retainer-based options that add ongoing value to your clients, such as maintenance packages, consulting, or VIP memberships.
• Look at seasonally relevant products or services that could create a boost when your primary offerings are less in demand. Even small add-ons or “off-season” versions of your popular services can help generate additional income.

4. Use Short-Term Financing Only as a Last Resort

While it’s ideal to rely on cash reserves, short-term financing can be an emergency backup in unexpected crunches. Options like a business line of credits can give you quick access to funds. Use these sparingly and only as a last, last resort; and have a solid repayment plan to avoid compounding expenses.

Additionally, avoid using credit cards to cover cash flow shortages at all costs! If you use credit cards as if it is cash, you can easily find yourself with massive credit card debt and interest charges that make you lose sleep at night. Credit cards can be used strategically for benefits such as travel points or cash back, but only if they are controlled and used wisely. When you use credit cards for purchases, ensure you always separate funds enough to pay off the card in full. This way you will never have a runaway card balance.

A quick side note: I’d recommend business owners never consider invoice factoring as an option to cover cash flow needs. This is a costly and often ineffective system that will do more damage than good to your business.

What’s Next?

Cash flow management during slow seasons takes planning, but it can ease the financial stress and keep you ready for growth opportunities year-round. Whether it’s building up a reserve, refining your seasonal budget, or adding steady revenue streams like subscriptions, a proactive approach can make a big difference.

With the right preparation, you’ll stay focused on what matters—serving your customers and growing your business in every season.

Adam Litster

Certified Profit First Professional and Pumpkin Plan Strategist

816-500-5779 – Option 2

adam@betterbizinfo.com

Visit Our Website!