Keeping a business going can be challenging at times. With these simple tweaks, you can reduce your business costs and improve overall efficiencies.
5 Simple Tips to Reducing Business Costs
The present climate of economic uncertainty makes it mandatory for businesses – big, small or startup – to cut their running costs to achieve the goal of successfully scaling a business without any financial worries.
For example in Australia, it was reported that at least 41% of businesses were impacted by COVID.
A shocking statistic, perhaps minimized if business owners find a way to pay less to run their businesses and reverse the trend of rising costs. Simple, but perhaps much harder to implement in weaker economic times not to mention in recovering economic times too.
Here are five simple tips that can be implemented immediately to help maintain cash flow without sacrificing the strategic goals of the business and even help you scale your company.
1. Negotiate with suppliers to secure better deals
Suppliers play an important role in any business. Without them, you will be unable to obtain the essential inputs necessary to run your business.
You should therefore consider mutually beneficial ways of working with them rather than see them as your enemies.
Having said that, you should not be uncomfortable finding out what other suppliers out there are offering. Industry and supplier associations are good sources for obtaining this kind of information.
There may be good reasons your present supplier is charging more, but you need to know for sure. Perhaps they are supplying you with higher-quality goods than their competition. But, if there are more attractive offers for the same quality elsewhere, speak to your current suppliers first. They may be prepared to match the offer their competition is making.
If the difference is significant and they are unwilling to change their position, it may be worthwhile switching to a different supplier.
If you speak with them, some suppliers may help suggest ways you can reduce your costs. They may even be willing to give you a discount on purchases when you buy in bulk. Just be aware that buying in bulk may involve substantial cash outlay and some products have a limited lifespan. In cutting down business expenses, you must avoid wastage by all possible means.
2. Review All Operating Costs
Begin by evaluating the overarching strategy of your business so you can identify what a ‘good operating cost’ is and what you consider a ‘bad operating cost’.
The line items that cost the most in your budget may not necessarily be the bad operating costs.
For example, you may be tempted to cut down your salary bill as a way of immediately reducing your overheads.
Without understanding what every staff member contributes to the success of the business, you may end up with too few people to get the work done by simply cutting down your staff strength.
One area that constitutes a major expense to businesses is capital equipment. Perhaps you had invested a lot of money acquiring expensive equipment for your business operations. There may be creative ways of handling this equipment such that it reduces your capital outlay and creates cash flow. One such method is to sell the expensive piece of equipment and then lease it back.
There are other possibilities, too. Technological advancement now makes it possible to complete certain tasks with the aid of software instead of using expensive equipment. This will cut down operational costs by a significant amount and improve cash flow. In addition, it can generate significant tax deductions.
3. Review Your Finances
Finance is another area in which you can lower your operating costs if you take appropriate action. By being particularly savvy in this department, you may find that there are certain expenses that your business can live without.
For example, it may be worth changing bankers if this helps reduce the cost of financing your business.
Shop around for a bank that can improve your access to capital and offer you a more cost-effective facility.
Take proactive steps to settle your bills promptly. Late payments may attract additional costs. You can avoid this by setting up a system to automate payments or provide reminders before the payment is due.
Consider internal staff, do you really need to keep everyone on a full time, or would part-timers suffice? While this is no doubt one of the harder decisions you might have to make, if it clearly makes financial sense then it may be time to bite the bullet.
Also, if your cash flow permits, switching from monthly to yearly payments can help you secure discounts on financial obligations like insurance premiums.
4. Automate and Outsource Smaller Tasks
Automation is the way to go in today’s world. Automated solutions pay for themselves very quickly because they increase output and lower operating costs. Automation also reduces cost-per-piece and increases the potential to produce more products.
Furthermore, business process automation can lift the morale of your workforce. Employees will get work done more efficiently because paper is eliminated at the source. Approvals are obtained from managers electronically without having to spend time waiting for a document to move from one desk to another.
Specific business functions and processes can be contracted to third-party providers through outsourcing. One of its main benefits is that it brings about efficiency gains, leading to substantial cost savings. It can also free up your business so your staff can focus on essential tasks. There are online services that can provide access to freelancers who, for a small fee, will take on small tasks capable of sucking away valuable time of staff members.
5. Manage Your Business Premises Efficiently
Startups and small businesses should consider sharing office space to reduce operating costs, although this can be understandably difficult given the current crisis.
Commercially run offices were however popping up all over Australia. They offer spaces ranging from open-plan areas to private offices with boardrooms attached. These offices allow business owners to pay for only the space they use.
More established businesses with good track records should negotiate better deals on their rent.
Another up and rising trend is of course companies going fully remote. This offers many advantages of its own, including the following:
- Money Savings: Working from home allows many people to save money on transportation (traveling to work), lunches bought out, parking fees to name a few.
- Better Work-Life Balance: Many remote jobs also offer flexible schedules, which allow workers to start earlier or later in the day. This flexibility offers more control over your work hours allowing individuals more time to enjoy their personal lives for an improved work-life balance.
- Less Stress: Working from home immediately alleviates common work-stress issues such as morning traffic and rush hour. Meetings can start on time almost every time thanks to rising technology such as ZOOM and Microsoft Teams.
While there are many avenues businesses can take to reduce business costs, these are just a few tips to get you started.
Setting clear financial goals can help bring about a positive financial year allowing you as a business owner to reverse the trend of rising costs and enjoy operating a profitable business.
More insightful articles from Rindx:
- First Steps To Creating A Business Strategy
- How To Start A Business From Scratch
- Tips For Launching An ECommerce Business On A Shoestring Budget