The Erin Davis Show, Episode 75. Transcript (Parakeet, timestamps every 30 seconds, obvious speech-to-text errors corrected: Erin, BAS, P&L, Making Money Method Challenge, five step).
[00:00] When the Reserve Bank lifted interest rates again on the 3rd of November, our bank was really quick to pass it on. I got a notification within a couple of hours. And I'll admit that my first reaction was not very calm. It was like, here we go again. And this is the same reaction I hear from so many women in business whenever our costs go up. The immediate thought is we just need to cut everything or work harder and bring more in.
[00:30] So, both of these actually feel like an action, but neither of them is really sustainable or a long-term plan. So, in this episode, I'm going to walk you through five steps to review your rising business costs because we know that business costs are going through the roof, but I don't want you to have to cut everything. So, by the end of this episode, you'll know exactly what's changed, where costs are doing their job, and the things that you actually need to look at this week.
[01:00] Welcome to the Erin Davis Show. I am Erin Davis. I help women in business feel calmer, more in control, feel clear about their money. And this is what I want for you. So let's get into it. Now, this week, money is feeling really tight for a lot of people, right? It is not just in your head, though. We know that costs are going up all over the place, right? Interest rates have gone up. This is the fifth rise that we have had this year. They are the highest.
[01:30] Since 2008, we know that CPI is rising. Now, this is that household goods, and you can bring it back to like a loaf of bread cost you so much, say a dollar 20 years ago. Now it costs you$4. That is inflation, that is the CPI. And we know that CPI has gone up. And while that relates to households, we know that it also impacts us in business.
[02:00] We also know that the ABS survey in June 2026 is saying that about half of Australian businesses had higher operating costs. This is overhead costs, 65% of them, staffing costs are increasing. We are feeling costs increasing across the board. And we know that, as small business owners, we are bearing the brunt of a lot of this. We know that.
[02:30] Credit card charges. We're not allowed to on charge those to our customers. So the big banks, they're getting away with charging us fees, but we're not allowed to pass that on directly. But it happens that we will increase our prices in order to cover those costs. If we don't increase our costs, sorry, increase our amounts that we're charging to our customers, then we need to be covering those costs within our business.
[03:00] And, you know, this is something that I see happening across a range of different industries. And the women that I are working, that I'm working with, they are feeling the pinch. They are the ones that are sympathetic to their customers because they don't want to put their prices up. They don't want to put their customers out because they can feel that everybody is feeling the pinch. But as business owners, we are also able and
[03:30] We're allowed to support our families and support and look after our family. So it is okay for us to charge accordingly. And I would ask you: what sort of increasing costs are you finding across your business? Now, we have different sorts of costs across the business. Some are necessary, some are unnecessary. But if your first instinct is to just cut or slash costs,
[04:00] Without actually looking at them, that's where things can really backfire. And so, I want to work through some steps with you today about: well, what can we do to try and work through the rising costs that we're all experiencing at the moment? And we're not in this panic, freeze, flight mode. We are not paralyzed because we don't know what to do. And the first part of that is: if you think
[04:30] You just need to cut everything when these price rises happen, that can really backfire. And if we go with a panic cut, as in we have just had an interest rate rise and we're like, oh shit, now I have to cut all of these costs, we're making a decision from fear and not from information. So, what this could look like is that you are canceling your marketing subscriptions, you're canceling your ads, but they are the things.
[05:00] That are actually bringing clients in. Maybe you decide that you need to let your bookkeeper go because that is a significant cost for the business. But on the flip side of that, if you are not across your numbers and you are not across the bookkeeping, you can make a real mess of what your bookkeeping looks like. And it will cost you more at BAS time, at end of year time, because your accountant now needs to go and fix your files that you're.
[05:30] Bookkeeper was once looking after. And so, if you just immediately panic cut all of these costs, which you think are their surplus to what you actually need without actually really thinking about it, you can make some really heavy decisions, which will impact the longevity and sustainability of your business. You may think about switching off some of your AI tools, but those AI tools are actually.
[06:00] Saving you hours and hours a week. If you didn't have those tools and you didn't pay for it, you would have to find the time to be able to do what your AI tools are doing for you. So, I want you to think about how you can reframe this. We're not bad with money, where we just need to take a breath, we need to slow down, and we need to really make these decisions when we're looking at the whole picture. If you are
[06:30] Blindly cutting expenses and not really looking at the long-term impact, you are just shrinking your business and you are getting busier, but the money is still tight. And so, when we are cutting just on a cost basis alone, that is not really a very good basis for making your decision. What I want you to do instead is we have this five
[07:00] step process for you to be able to make some really clear decisions about: well, how do I need to move forward with my business? What can I do? What am I in control of that will allow me to take back some control but also feel really confident with my numbers? So, we've got five steps. The first step is to compare what changed and notice how it impacts your business. Okay, so I want you to compare what changed.
[07:30] Changed, but don't just also think about well, how is this feeling? I know I talk a lot about feelings with numbers and money can be so emotional. But at this point, I want you to start to look at the real numbers, not the headlines, not the things that are looking big or feeling big. I want you to actually just take a pause and take a moment and look at last month's spending compared to the same month last year. Or if you're looking
[08:00] A quarter, what does this quarter look like compared to last quarter or the same quarter last year? You can start to see what line items in your profit and loss have moved. And there are three questions I want you to ask yourself: what costs went up by roughly how much? And is this a one-off or is it an ongoing cost? So you don't need to have perfect spreadsheets for this, you can just use your P&L in like your accounting software, you can run a profit and loss statement.
[08:30] And it will show you all your expenses. You will have the comparison. You can change what that looks like and you can compare to different periods. But the thing is, I want you to actually take notice of what's gone up, what's gone down, where are things moving, and in particular, what does the interest look like? And if you've got loans or you're holding credit cards and overdraft, it's really important for you to assess why you are using that loan.
[09:00] What is the cash flow looking like? What is the cost of having that cash flow support available to you? Now, you may need to go and speak to your lenders. You may need to review some things, which is further down in our steps. But for this part, step one, I really just want you to compare what's actually happened in this last period compared to the same period last year, last month, whatever that comparison period is.
[09:30] But start to take some real notice of what is actually going through your profit and loss statement. And we're not guessing, we're not just assuming that this is what's happening. We are looking at the actual numbers. So, once you can see what's changed, you can then sort it out. Now, sorting your costs into four types is step two: we have fixed costs, so you pay these costs whether you see a client or not.
[10:00] So, this is rent, insurance, your software costs. And for those service-based businesses, it is things like your subscriptions doesn't matter how many clients you see, you're going to have to pay those things anyway. If you've got a bricks and mortar business, you still have to pay the rent, you still have to pay the electricity. It doesn't matter how many clients come through the door. And so, break those costs into, well, work through them. Are they a fixed cost?
[10:30] And then you need to ask yourself: am I paying the right price for this cost? Do I need to phone my electricity company? Do I need to phone my insurance company? Do I need to look at different types of subscriptions that will do a range of different things for me? Particularly with subscriptions. I know, you know, lots of people bang on about subscriptions, but there are so many different ones now that can do multiple tasks.
[11:00] We don't need to have a huge range of subscriptions because there are options out there which encompass all of these things and do it all within the one thing. So, if it's been a while since you've reviewed what you actually use in your business, whether it's needed, whether you could be changing things around, you know, let's have a look at that and actually decide and make some decisions. Does this cost actually serve me? Is it doing the thing that I originally intended for it to?
[11:30] Do and is there a better price available? Like, if we don't ask, then we're not going to know. The next cost is a variable cost. So, this moves depending on how much work you actually do. So, if you have a product-based business, that's obviously the products that you sell. Maybe it's the payment fees, so they are dependent on the number of sales that you make. Maybe it's contractor hours. So, if you have more income coming in, do you need
[12:00] More contractors or more staff in order to meet that demand. And so, this also you need to ask yourself: how much does it cost me to deliver to one client? What is the cost for me to provide this service to the client? So, with all of these variable costs, if your sales go up, your variable costs are going to go up, and we need to make sure that they go up in the same way.
[12:30] Proportion or a less proportion. Maybe you can scale and take that, take advantage of the economies of scale. That as you do more, it actually costs you less. But you need to be careful that it's moving in the same direction. You are not just taking on additional costs, but the sales are not increasing in the same proportion. The next one is periodic costs. Now, these are quarterly or annual costs. Quite often, it's insurance renewals, registrations, memberships.
[13:00] You need to know when they are due, how much they are, how much money you need to set aside, because these things tend to land in the busiest months, in the months where we're not expecting it, when we have other things that we need to pay for. So, part of our sort them into costs categories is knowing that when these things come in, we are able to pay for them. Again, we've got the right providers, the right amounts.
[13:30] Sometimes with these memberships, you don't have a choice. You just have to pay your industry bodies. But we need to know how much they are and when they are due. And then the next one, the fourth category is this owner-chosen category. So these are the things that you pick up that you're still paying for that are not actually serving the purpose anymore. Again, it could be subscriptions, it could be courses. I see so many coaches and service-based businesses, they just have course under.
[14:00] Course after course, they have coach after coach after coach because they think they are missing something. There's a shiny object out there that's the missing piece that they actually need for their business to get going. Truth be told, is that they are probably lacking something within themselves to trust that they have enough information, to trust that they know what they need to do. They may have an accountability issue or an implementation issue, but they don't actually need.
[14:30] Any more information. So think about what courses or what coaches or what support are you having around you? Does it actually serve you? Is it doing the job now from which you signed up for previously? If not, then you need to make some decisions. Now, this could be pretty tricky because we may have FOMO, we may be, oh, we don't want to miss out. And I have definitely been guilty of that. Making decisions based on FOMO.
[15:00] When I really actually know that these particular costs are not right for me, but I thought they would bring me something else. And so sometimes hard decisions need to be made. And it's not personal, it is a professional decision. And it is about, well, what is the best use of my money? What is the best outcome? What is the return that I am getting from this investment? Because when we start to look at things from a return perspective, we are then changing.
[15:30] The decision-making process, we're not all based on emotion. We're actually asking some really important questions. So, they are the four categories. We've got fixed expenses, variable expenses, the periodic ones, and then those owner-chosen ones, which are the ones that we just keep hanging on to because we think that they're going to be okay or they did something in the past, but they're not serving us now. So, you need to be really kind with yourself. Don't bang on or be hard with yourself that you are.
[16:00] You've signed up for something and it didn't deliver. You know, that could provide you with a lesson in itself, but we need to learn from these lessons. We need to have a look at what is actually serving us now, what is making us the thing that we need so that we can move forward and we can really start to understand what it is that we are doing with our business. So, those are the four costs that we need to think about.
[16:30] Step three is you need to give every single cost a job. Now, this is about really being in charge and deciding what the costs in your business actually do. So, a really good question that you can ask yourself is: this cost helps me or helps my business buy and then fill in the blank. So, does it deliver
[17:00] Better fulfillment to my clients? Does it provide a better onboarding process? Does it save me time? Does it allow me to get paid quicker? And then you can start to really think about: do I keep this expense? Do I change it or do I stop it? Everything with this is about becoming really super intentional with your spending. And you can't do that if, first of all, you don't know what you're actually spending.
[17:30] So that was step one. We needed to review. Step two, we needed to categorize it. Step three now is: how is this helping my business? Is it a nice to have? Is it something that's random? Is it something that I'm not even really paying attention to? Is it not serving the purpose that I want anymore? You really need to be very conscious about giving every dollar a job within your business. And so, this is how things show up in our business.
[18:00] Business where we're not actually paying attention to our costs. We are just being reactive. We're not leading, we're reactive. We're just paying things without even really thinking about it. So, before you discount, before you chase more work, you need to check your margins. You need to check what is the impact of this cost on my business. Then, step four is now checking your margins before you go and discount or before.
[18:30] Before you go and chase more sales, you know, a really common thing to do is just discount. And when you discount, you actually have to do more work for the same price. To in order to earn the same amount of money, you have to deliver more. And so the question needs to be asked: do you actually have capacity to deliver more? If you are offering your business in
[19:00] Your business one-on-ones, or it is, you know, you providing your time. Do you have capacity to provide all of those additional services just to earn the same amount of money? Like, sometimes it's not worth discounting because you don't actually have capacity. You may also look at if discounting is the thing that you do and your costs are rising.
[19:30] That margin between what you're selling and what it costs you to deliver is shrinking. That gap is getting very small, and you need to start to do a whole lot more in sales in order to just make up the margin. So, this is where it's really important to know how much it is costing you to deliver your services. And we talked about that just before: we need to know what these costs are and how they are.
[20:00] Impacting our business. But we also need to know that if we just have a price rise, there may be some resistance to that. And that's, you know, that is obviously a business decision that you need to assess and you need to work out. But the thing is that you will start to get a feel for what your industry is available, what is acceptable.
[20:30] What is where you can go to within your business? You don't want to just discount and have a fire sale because you have to sell a whole lot more to make the same amount of income. It may be that you raise your prices, you then don't have to sell as much to generate a lot more income. Maybe you're just at that baseline.
[21:00] You're just generating income now at the same capacity you were before, or that you were generating, but you don't have to sell so many more products or services to achieve the same outcome. And this is where you really need to start to look at: well, what's the impact of discounting? What's the impact of price increases? You know, actually start to run your numbers and have a look at what the different scenarios are. You could ask AI to
[21:30] Run some scenarios for you. What is the impact of my bottom line profit if I do this or if I do that? So it's important for us to make some decisions from a perspective of well, what are the numbers actually telling us? And then the last step is you need to choose one of these costs to look at this week. It can feel big and it can feel overwhelming, particularly when you have the cost pressures and maybe you've been looking at your
[22:00] Costs so religiously that it feels like that's all you ever do. I want you to take a step back and I want you to look at just one particular cost and really think about those four areas that we spoke about: like what type of cost is it? What is it bringing to my business? And then start to think about: is this the best price? What can I do about it? Where do I need to go? It's not about throwing everything out and starting all over again, it's not about randomly cutting.
[22:30] Things and hoping for the best, we want to be strategic about it. And when you are doing an end-of-month review or a check-in regularly, and even an end-of-quarter check-in before you do your BAS, these are the types of things that you are going to be looking at. And your business will not have surprises if you're on top of it. And so, when we are looking at our numbers regularly, this is when we can start to really take notice of what is happening in the business.
[23:00] Rather than acting out of fear or reaction or being very reactive all the time, we know what's coming. We know what the costs are, we know what the buffer is that we need to be having in our business, we know what our baseline is. These things are not surprises. Yes, we don't like price rises. Yes, we don't want interest rates to go up. Yes, we don't want inflation to keep rising yes to all of those things, but they're out of our control. We can't do anything about it. We need to learn to play within the
[23:30] Rules. We need to maximize the rules. We need to minimize our tax. What are the things that we can control? One of them is our spending habits. Now, if you are the type of person who is very reactive with your money and you are not leading with intention, now is the perfect time for you to change things up. And if you need some help to build that rhythm, come and join my free four-day challenge. It's the Making Money Method Challenge. We start on the 23rd of November. I will put the link in the show notes. It's Erin
[24:00] erindavis.com.au/challenge (spoken as "Erin Davis dot com dot au forward slash challenge"). And over these four days, we're going to look at where your business money is going, what feels really tight, where the overwhelm is coming from. And we're going to have these really practical things that you can do after the challenge so that you are going to feel more in control. And that is what we want with our money. We can't change these things that are happening in and around the world, but the thing we can control is how much we spend, what we
[24:30] Spend it on, and how that is impacting our business, how that makes us feel. And you know, we just need to be the ones taking control of that aspect because we can't do anything about the big global issues or even those interest rate changes, anything like that. That's out of our control. So, join me for the challenge, and I will put the link in the show notes.