There's a simple rule in business that if you want to increase profits, you need to either increase sales and revenue, or decrease costs and expenses. 

If you want to work on the expense side of that equation by reducing your costs of doing business, one key is to start to measure those costs as a percentage of revenue. Run that calculation using your past three or four annual financial statements. If that percentage has changed from year to year, one thing will be clear: Decrease that percentage and your profit increases, even if your revenues aren't growing.

Once you have established what your costs have been in the past as a percentage of sales, you can turn your attention to making sure that percentage starts to go down.

Rein in insurance costs

Business-related insurance coverages can be a key area to look at when trying to reduce expenses.

Take your workers' compensation insurance, for example. You or your insurance broker should make sure your employees are properly classified. You may be paying as much as $5 to $7 in workers' comp premium for every $100 in payroll for technicians, for example, while rates for the office workers in your shop may be closer to $1 or $1.50 per $100 in payroll.

Because your premiums are based in part on payroll, a slowdown in work that has significantly reduced your payroll may make it worth going back to the insurance carrier to see if your premiums can be adjusted to reflect the decreased payroll.

As with all insurance, your workers' comp rates are also based on your claims history, so making efforts to reduce workplace injuries will help you reduce costs. Ask your insurance broker or workers' comp carrier to conduct a free safety audit of your shop. They'll point out things that could lead to claims and higher premiums.

Employers can also reduce workers' comp costs by reducing the expense of injuries when they occur. Some states, for example, allow you to designate a clinic where all employee injuries are handled. Get an injured employee back to work - even if on light-duty handling paperwork - as quickly as they are medically able. And if you suspect fraud, push the insurance carrier to investigate. Double-digit annual increases in medical insurance make providing health coverage for employees among the fastest-growing expenses for most businesses. Most companies have already taken the traditional steps to dealing with this: raising their deductible and requiring employees to pay an increasing portion of the premiums.

One of the newer ways to possibly reduce health coverage costs are health savings accounts (HSAs). Such plans can be less expensive because they have a high deductible. Under the plan, however, the company and its workers can put pre-tax money into savings accounts that can grow over time or be used to cover health care expenses.

HSAs may be more appealing to some company owners and employers (particularly those who are younger, healthier or more highly-compensated) than it is for others, but some health insurance providers may even allow you to offer employees a choice of either an HSA or a traditional plan.

In any case, shop owners should get a two-or three-year history of their health insurance claims. The insurer cannot provide specific health care costs or treatments by employee, but they can provide a summary that shows, for example, the total amount paid under the plan for doctor's visits, hospital care or prescription drugs for your company's employees in a given year. Comparing this amount to your premiums can give you an indication what kind of value you're getting for your premiums.

Business property and liability premiums also tend to be dropping after rising dramatically after 9/11, so now may be a good time to shop around, particularly with the five or six carriers who specialize in business insurance for the automotive repair industry.

And just as many direct repair agreements require participating shops to carry a set amount of liability insurance, shops too should make sure their sublet or other vendors are adequately protecting the shop. Ask your key vendors or sublet providers to name you as an additional insured on their policy.