Episode 52: Why Cutting Costs Won’t Always Boost Profit

  📍 Welcome to the Creative Minds Smart Money Podcast, where we turn financial confusion into creative confidence. I’m Samantha Eck, bookkeeper and fractional CFO for creative entrepreneurs. Each week I’m sharing my financial expertise and actionable strategies to help you build a thriving creative business. Plus, you’ll hear from industry experts who bring fresh perspectives on growing your business beyond the numbers. Because building a successful creative business starts with strong financial foundations. Your next chapter starts now.

 You are listening to the Creative Minds Smart Money Podcast. And today, of course, as always, I’m so excited to talk about all the things. I’ve been talking a lot lately about on threads, about how I just struggle so hard with getting things out into words and which is why I love my podcast because my podcast is literally the place where I can come and just like talk.

I have an outline for the episode. I have a vision for the episode, and I just talk and I guess it not really makes sense, but it all just flows really well because I already know what I wanna talk about. Whereas with my, emails and all of my writing and things like that, it always seems super hard for me to get the point across.

So if you’re here, thank you for listening and know that I’m always here to provide value and education, but I also wanna help you out as a bookkeeper, as a professional CFO, I want you to understand your numbers. And I’ve said this before, but I want you to beat statistics. So today we’re gonna talk about why penny pinching, or cutting costs isn’t always a way to boost profits.

Now, we’ve talked a lot about in the past about things we need to cut, like subscription costs or when we’re in a recession, you need to cut things. But I wanna focus on the opposite side of this, and talk about why cutting things isn’t necessarily the best business strategy especially if things are already working for you. It’s so important to really talk about this because I think that there are too many times when we assume that. If we are running our businesses and things are getting tight, the only thing to do is cut everything. And by cutting everything, I literally mean cutting everything, which just, it’s not the best strategy and it’s not really a strategy period, because if you’re going to cut everything, you’re gonna take back time that you might have already gained.

When your expenses creep up and you’re looking at your profit and loss and you panic, and your first instinct is to cancel everything, whether that’s a bookkeeper, a virtual assistant, your social media manager, something like that. Because what we’ve been taught. As a society and as individuals is that the solution when things get tight is to cut back, which is realistic, especially in like a personal sense.

But when you’re thinking of a business mindset and we’re thinking of that from a business sense, it’s a lot tougher to cut back because when we cut back, it’s what keeps us small, because as business owners we only have so much capacity, and in reality we are the bottleneck. For example, I own, I run my business, and I understand that because I’m the only person in my business, I am the bottleneck to everything.

If someone needs to speak with me, if they need financials, if they need to ask me questions. I’m the bottleneck, but if I had support or help in certain areas, that bottleneck is eliminated. So that is why I’m saying by cutting, it keeps you small.

So let’s really dig into this topic and talk about it and how we wanna shift from being defensive about our finances to being more offensive and really focusing on what’s going to drive our business forward, not drive it backwards. When we really, really think about where. The fear or the feeling of penny pension comes from, or the feeling of cutting costs comes from. There’s really three important things that we wanna think about when we think of, okay, where am I focusing on cost for? Obviously, the first one is fear. So you’re scared.

You are scared that you’re gonna run out of money. You are scared that you’re not gonna be able to provide for your family. You’re scared that your business is gonna go over. Under. It’s all rooted in emotion. The other one is shame. You know, you are ashamed that you can’t afford something or someone you’re ashamed that something’s happening.

Now, I don’t want this to be a thing where you’re like, okay, Samantha, so you’re telling me , I should just keep everything, even if I can’t afford it. That’s not what I’m saying. I’m saying I want you to think critically when you are in a, emotional state of fear or shame or even survival mode where you’re like, I need to cut costs in order to save money.

And I want you to think critically and really analyze where you cut costs. Because if you’ve gained, I dunno, let’s say five hours back in time from handing off your bookkeeping and it saved you over $3,000 because you’ve managed to cut subscriptions you didn’t need, or something like that. The question then you wanna ask yourself is, will cutting my bookkeeper help me or is it going to actually hurt me in my business?

When we cut things, it feels really productive ’cause we’re like, Hey, I have more money in my pocket. This is fantastic. But what happens is it often creates this false sense of control because now you know you’ve cut that bookkeeper, now you have the bookkeeping back into your lap and it’s back there, and now you have to deal with that.

So there’s just so many common traps that we find when we end up penny pinching, like cutting, coaching, slashing tools. Avoiding hiring, and just DIYing because you don’t want someone to take over for you or something else is happening. You can be frugal, but I will just say this part, like straight up.

You can’t frugal your way into financial freedom. There is a strategic way to get there, and then there’s a really, really tight way to get there. Now, I, that’s not me saying don’t hire people or cut everything. Again, I wanna make sure that we’re just being really intentional, like you guys know. I’m very intentional about that.

So when we talk about cutting costs. It doesn’t necessarily, again, mean that it’s going to bring you more revenue or bring you more profit, because cutting costs is not always the way to bring you more profit. Again, if you had a bookkeeper and they save you five hours a month, that’s five hours that you could be spending on sales generating activities.

So when you think of cutting things or you think of letting go of people, you really want to be critical of what you’re letting go and why .

When you cut costs, like what does it actually cost you? You’re probably looking at me and being like, okay, so what Samantha? I cut my bookkeeper, I cut my coach.

What is it gonna cost me? Well, there’s a few things and it really helps emotionally like. Especially, you’re gonna have that lost momentum. Imagine you have a coach who just fires you up and burns you up inside. It’s like, yeah, this coach is amazing. I love this person. They just get me going and you’re like, you know what?

My costs are too tight. I have to cut them. It’s a loss of momentum because now you just you don’t have them anymore. You don’t have that same support. You don’t have that same backing. And now when you make decisions, you have no one you can go to.

It also gives you a sense of decision fatigue because when you’re really thinking about what costs to cut and you know, you’re having to decide between all these different things, it’s gonna just give you that like fatigue and it’s gonna take and zap that excitement out of your business. And similar to that, along that same vein is burnout.

Because if you’re just cutting everything and you are putting everything back onto your plate, you’re gonna burn out. Now, I know that everybody loves to live the solopreneur life, they love to be a solopreneur. And there’s nothing wrong with being a solopreneur. However, a solopreneur does not necessarily mean that nobody is ever involved in your business.

Human beings are really good at certain things, and even as business owners, our zone of genius is certain things. So if you’re a website designer, your zone of genius is designing websites. Now, if your zone of genius is also numbers, fantastic. But that’s what kind of what I’m talking about.

If you’re focusing on numbers and you absolutely hate them, and you handed it off to your bookkeeper, and now you take it back, you’re going to burn yourself out because that was something that you passed off and you just couldn’t handle. Now again, I want. I just wanna make this clear. It’s not if you are in desperate need of money and you need money to support your family, I’m not saying don’t cut things.

This is more of that occasion when you have money, you are able to provide for your family, but you are looking at your business and you’re like, I want more in my pocket. Which isn’t necessarily always a good, like it is a good thing, but the way to getting more in your pocket is not necessarily cutting costs.

It could just be adding revenue, if that makes sense. We always think of, cutting when we have a scarcity mindset. Again, that’s where I’m talking about this is comes from that scarcity mindset where we’re cutting because we just wanna see more internet income right now right at this moment.

We wanna see that percentage. Sometimes it takes a while to build up to that net income. And by cutting things and cutting from scarcity, you play into this cycle of being small because you’re like, okay, I just wanna see my bottom line grow bigger right now. But businesses don’t grow their bottom line overnight.

Their bottom line takes a lot of time and a lot of people, and a lot of help and a lot of assistance. So again, that’s gonna show up not just in your business, but in your books, because it’s gonna cause some sort of delayed growth. You’re gonna have stagnant revenue because you know you’re focusing now just on the parts of your business that you were not focusing on now, and then of course it’s gonna cause that unpredictable cash flow. ’cause you do have that stagnant revenue. So now you’re, telling me, okay Samantha, so you’ve gone on and on about cutting costs, but what works instead? Like, what can I do instead of cutting costs that will help my business?

So first of all, the key here is going on the offense with your numbers. And that sounds like a, a sports term I know. But let me go a little bit deeper. The first thing is understanding what’s actually profitable in your business. So when I’m saying that, what I’m saying is if you are looking at your business and you have.

Let’s just throw out a number, 50 different offers. As a service provider, you have 50 different offers. 25 of them are digital, 15 of them are group, 10 of them are one-to-one programs. Whatever that is. Maybe you have just like this massive business, what of those offers is actually profitable?

And if you’re looking and you’re saying, okay, only 10 of these offers are actually profitable, like only five of these group offers two of these, one-to-one offers, and three of these digital products are actually profitable. First of all, the first thing you need to do is cut all of the other offers.

Like, don’t focus on the non-profitable offers and focus on the profitable offers. What about them works? What about them is bringing you in money and how can you make more? I. And then of course we have using KPIs. So this is very CFO level mindset. This is not something a lot of people really think about, but it’s your profit per service, your cost per, client acquisition, and that’s where you really start to dive into your direct costs, your indirect costs, and understanding kind of what goes into all of the cost of service so that you can make your business a little bit better.

And then, of course, looking at where to invest. Not just where to cut. So if you’re cutting something for a reason, maybe you’re looking to invest elsewhere. Like just as an example, again, if you’re looking to cut bookkeeping, maybe you’re, it’s because you’re looking to invest in funnel building. Or if you’re cutting funnel building or social media, maybe it’s because you’re looking to invest in bookkeeping so that you can raise your profits or just something like that.

So I wanna give you just a clear list of profitable business moves that will help you when you’re in this mindset of cutting things. So the first thing is investing in client retention. So the clients you have, the current clients you have, or the clients that you’ve worked with in the past already know you and trust you, and you’ve built that trust.

So investing in something that’s going to retain them and help them just be. Consistent clients is always going to be the best thing for you. Whether that is building a retainer, whether that is building out your client journey and your back, like the background of your business. Building recurring revenue.

That’s always something that’s good, especially when you have that monthly recurring revenue ’cause that’s gonna help you build your business. And then of course, getting financial strategy support because. If you’re someone who doesn’t think in the mindset of numbers, like KPIs, what’s actually profitable, all those things, it’s really hard to understand where you need to go next because you can be making these six figure incomes and not even understand what’s going on in your business.

So that’s where we come in with that intentionality. And then of course, raising prices intentionally, not reactively. So if you have had the experience for six or seven years now, and your prices are on the low end, but you know, for your experience, your prices should be up here looking at that and saying, okay, like how do I raise my prices so I can cover my bottom line?

Things like that because cutting is not, again, cutting is not always the solution. There’s just a multitude of other things that it could be that could help you not cut and help you grow your business with even more intention. Just as a kind of reframe, I want to analyze and give you some steps of what to do when you get the urge to cut everything, because honestly, it does happen more often than not.

There’s days where you’re like, I just wanna burn everything down. I don’t wanna deal with this anymore. So these are the four steps that I want you to take. If you’re ever in that head space where you’re like, I just wanna cut everything. I can’t afford this, I don’t wanna do this anymore. So first of all, stop.

Pause the panic and sit with it for, you know, 25 hours or 25, 24 hours. There’s only 24 hours in a day. Sit with it for a full day. Don’t cut immediately. Like, you know what I mean? Don’t get the urge to cut and then just be like, oh, I’m gonna cut things. Pause it, sit with it for 24 hours, sit with it for 48 hours, however long you need to like run through those emotions.

And this is emotional intelligence we’re talking about because a lot of times. Finances are tied to emotion, and that brings in that emotional intelligence because as business owners, when we just go off of our emotions, it can lead to a lot of different things happening in our business that aren’t necessarily favorable.

The second thing I want you to do is look at your cashflow forecast. And if you don’t have fun, that’s something you definitely need to start looking at and not just like a basic cash flow forecast. When we do cashflow forecasts, we look at analyzing what could happen if you grow, what could happen with things there, and things like that.

So looking at your cashflow forecast, seeing where your income is coming. Do you have income coming in? Do you have things going out? Just analyzing everything in your cash flow forecast. Identify your high ROI expenses. So looking at your expenses and saying, okay, so what is. Giving me a high return on investment.

So again, as an example, if your bookkeeper is giving you a high return on investment, they’re saving you time, they’re saving you money, they give you clear insights on what to do with your business. It’s a high ROI expense, right? Because you understand it. So if I don’t know, as an example, let’s just say.

Canva. I know Canva’s usually has a high ROI, but let’s just say Canva. You’re using Canva and you feel like it’s giving you just the crappiest ROI, because you’re not, you’re never using it. You don’t use the templates. Why would you even bother with it? That’s a low ROI expense.

The fourth thing is considering temporary slowdowns with strategy, not gut-based slashing, because again, when you go with your gut and you’re just like, I’m just gonna cut everything, usually you cut things that are helping you build your business and not helping you. , Usually you cut things that are helping you build your business, not things that are not helping you build.

So sometimes the power move for your business is holding the line where you are and not yanking the plug out when we really want to. I understand type months are a part of the cycle, but realistically how you respond to them and how you react to them really defines how you get to your next level.

Again, I wanna be clear that. If you are in desperate financial situations, cutting is a hundred percent an option. But if you are someone who is wanting to grow your business with intention, you do have room in your bottom line, and there’s just ways that you’re looking to grow your business. Cutting is always not always the way.

📍 You don’t need to go lean. You just need to become financially literate and understand what’s going on with your business. If that’s you and you’re like, okay, Samantha, I just really need some help with that, I’m available. I provide that cash flow support. I provide strategy calls.

It’s not necessary, but I’m always there to help you with that, if that’s something that you’re looking at or something that you’re going through. Even if you just wanna talk. I never charge for just talking. So if you guys wanna email me, hit me up on Instagram, wherever it is, and just talk through something, I’m there for you.

Okay. If you enjoyed this video, make sure to share it with a friend who might think that cutting is always the best solution. And as always, if you have any suggestions for future episodes, leave a suggestion in the using the form in the description box below. Always remember to rate the episode and share as it helps people find the podcast wherever they may be.

I appreciate you so much for spending time with me today. As always, we’ll see you next week. Farewell fellow Traveler.