Continuous investment in your business is mandatory if you are to stay ahead of your competitors. It is also one of the ways to increase your bottom line and enhance your production. However, these expenses, if not well managed, can expand over time and eventually become unsustainable. Currently, most businesses are suffering from the effects of COVID-19 preventive measures such as; social distance practices and closure of businesses. As a result, most of them are considering cutting costs, and therefore, they are looking for cost reduction options that can help them survive during these difficult times.
Whether you are going through cash flow challenges, or you are facing a potential loss of funds, learning how to reduce your business expenses is vital if you are to survive the storm. In some instances, a few minor tweaks here and there can help you to minimize your monthly expenditure, while in other cases, you might need to consider other major cost-cutting measures. The good thing, however, is that several cost reduction options are available for both big and small businesses.
If you are a business owner, I understand your frustration, as no business wants to cut down their expenditure to the bare minimum, but if this is what it takes to survive, then you have no option but to read along for tips on how to minimize your operational cost without affecting your productivity.
Cost Reduction Strategies for Businesses
Even though businesses or companies have different needs and goals when it comes down to scaling down expenses and limiting budgets there are two key strategies that are universally recognized by both large and small businesses. These strategies are;
- Developing and executing business cost control measures (reduction cost)
- promoting spend visibility while at the same time, minimizing total expenditure (spend management).
While these two techniques are great options for businesses that intend to build value and optimize their spending, they are even more resourceful during an economic crisis when businesses are experiencing cashflow problems which then forces most business owners to quickly change their business objective to focus purely on survival.
Apart from managing spend and reducing cost, crisis management is another intervention measure that offers a great opportunity to implement the third set of cost reduction measures;
3.Broader total optimization that is geared towards the elimination of fraud and waste while maintaining quality through strategic workflow and overall organizational effectiveness.
Cost reduction measures
When there is a significant drop in profitability and production, cutting down costs becomes a priority. Cutting down cost is a tricky balance between priority expenditure (expenses that you cannot do without) and ‘nice to have’ (expenditures that are targeted for reduction or elimination). You need to be careful when cutting down costs, so as not to deduct a lot of expenses that will leave you and your business vulnerable to competitors. Some examples of how you can strategically control cost include;
- Reviewing your business budget
- conduct a break-even analysis as per your latest data to plan for contingencies
- Create a business forecast report for both a worst-case and good-case scenarios
- Focus on cash flow (review your payroll and personal expenditure among others )
Spend management Strategies
Cutting cost is a start; Even in a crisis situation, businesses and companies have to abide by the old adage “spending money to make more money”, in addition to, having clear visibility on their spending. More importantly, they also need to have full control of every penny that goes out.
The goal here is to immediately take charge of both indirect and direct expenditures. Of particular interest, should be the indirect costs as this, if not well managed can quickly plunge the business into more turmoil.
Process Optimization Strategy
Process optimization is a component of the overall business process management strategy. This can take different forms but there are a number of approaches that are specific to businesses of different types and sizes. Some of the approaches under this strategy include; improving both qualities of products/service and customer care, taking advantage of modern technology, improving communication between team members, getting rid of time-consuming and repetitive tasks, and eliminating human errors.
Business cost-cutting techniques
In most cases, the best way to reduce your business expenses is right there in front of you. All you have to do is look more keenly. When planning for cost reduction, you need to re-look at all the aspects of your business operations. Here are some tips on how a company can reduce costs and save money.
1.Automate your business processes
If you are not taking advantage of the numerous apps and Softwares, in operationalizing your business processes, then why are you even here? When working on ways to cut down your business expenditure, you need to realize that employees’ salaries also contributes to the cost. And you should, therefore, be thinking of ways of directing those funds to the tasks that really need a human face present.
Most business activities such as HR, invoicing, payroll management, data entry, and some bits of marketing can be fully or partially automated. Outsourcing apps and Softwares are way cheaper compared to having a full-time employee. You can save money by not hiring full-time employees for the above-mentioned tasks. The areas and level of automation rely on the services or products you have in store.
Another benefit of automating your business is that it allows your employees or staff to fully concentrate on the most important tasks. This, therefore, will help improve their efficiency as well as, overall productivity. Improvement in productivity consequently contributes to a reduced production cost.
2.Virtual office vs office space
The first thing that comes to your mind when you are planning to start a business is an office space. For a beginner, you might be tempted to lease or rent a classy and spacious office space. This is not a good idea.
Renting or buying a luxurious and spacious office space will cost you an arm and a leg, and this is what we are trying to avoid. You see, most beginners usually think that once they have an office, that is the end of it. They tend to forget that there are other charges like maintenance cost, repairs, utilities, among others that will also need to be taken care of.
So, what should you do if you are in this kind of situation? Well, for starters, you will first need to identify all the pressing business. Since you are starting out, you don’t require a huge office space. All you need is a simple room to kick start the process and once the business is stable enough, you can then move to a bigger and better office. Moreover, with the rapid growth of online working, you don’t need to have all your team working in the same office.
Alternatively, if your work can be handled remotely, why do you need a physical office? You can create a virtual office and grow your business from there. By doing this, you will save money on a cost that most businesses spend a significant amount of their time on. With this kind of arrangement, you can hold your meetings on co-working spaces, and all the other business needs such as receptionist, mailing address, VoIP phones among others, will be handle by virtual providers at a relatively lower rate.
3. Consider outsourcing some tasks
Outsourcing is another effective way of minimizing overhead costs. Outsourcing offers you flexibility. It involves hiring experts to handle tasks that are essential but don’t need to be done on a daily basis. All business processes can be outsourced and therefore, it is you to decide which ones you want outsourced and which one not to. If for instance your business deals with something like travel and tourism, some HR tasks like; hiring of new staff and payroll management can be outsourced since it is not among the core activities of the business. By outsourcing these kinds of activities, you are left with enough time to focus solely on those activities that matter the most.
If for instance, you were to hire HR personnel to handle all the HR activities, you will have to pay their salaries every month, for as long as you require their service. Apart from the salaries, you will also have to provide some added benefits such as sick leave, training, annual leave, among others. You will even pay them even when you don’t require their services. Outsourcing offers a solution for all these, as you only pay for the service, all the other benefits and allowances are not your concern.
The best thing about it all is that you start saving, right from the word go. You see these are experts, fully trained, and equipped. All you need to do is hire them and wait for the job to be done. By doing this, you save money that you would have incurred in training, capacity building, and all the other perks and benefits that come with full-time employment.
4. Online Marketing
One of the key pillars of a successful business is marketing and there is no business that has prospered without having a strong marketing team. Simply put, if you intend to make your brand known, you need to reach out to your target clients wherever they are. And one effective and efficient way to do this is through digital marketing. It won’t be wrong to say here that digital marketing has overtaken traditional marketing by far. By saying so, I don’t mean that traditional marketing no longer works, but it is not as cost-effective as digital marketing.
If your business still relies on traditional marketing strategies, I will not hesitate, I will not sugar coat it, I will tell you the bitter truth, that you are stuck in the old era – and your dream for success is nothing short of fading smoke. I say this because, apart from spending a lot of money on marketing, you are also losing a bunch of opportunities and with that, goes the potential of making more profit.
Apart from being cheaper, digital marketing techniques are also a whole lot faster than traditional marketing. And to top, it all is that you can measure your success vis a vis the cost and efforts you’ve put into. So, what are you still waiting for? Start marketing your business online by taking advantage of the social media platforms and see your marketing costs go down while you continue maximizing your profit.
Some of the cost-effective digital marketing strategies that you can take advantage of are; content marketing, video tutorials, micro-influencer marketing, blogging, and email marketing. Note that digital marketing though expensive is an important business function that you cannot do without. And for you to cut costs, it is crucial that you adopt innovative ways of marketing including embracing the numerous social media platforms.
5. Use energy-efficient electrical equipment
Utility bills are some of the expenses that you can consider if you are to reduce your business expenses. The first thing you should do to change your lighting bulbs (that is if your current ones are halogen or incandescent bulbs) to the most efficient compact fluorescent or LED bulbs. This type of bulbs cost more than the common bulbs but are more cost and energy-efficient. They also last longer and therefore, it will help you save money.
Another way to reduce the amount of money you spend on electricity bills and electrical repairs is to replace your thermostat. Heating and cooling are some of the areas that consume the most energy. To minimize this, you can turn the temperature a degree lower during winter and higher during summer. Alternatively, you can program your thermostat to re-adjust the temperature to the recommended levels whenever there is no one in the office.
How can I save my small business?
This is one of the frequently asked questions among business owners, particularly first-timers who are yet to develop that ‘business tough skin’.
Well, the first thing you need to know is that business is not a bed of roses. One day you are swimming with the shark, crunching number and smiling at your ever-increasing profits and then without notice, the numbers start to dry-up; few customers, drop in sales, and of course decrease in profits – and then you end up asking, “how do I save my business?”
To save your business you first need to find out the cause of the problem. What contributed to the drop in the number of customers? was it poor customer service? or is there a new competitor with a better business strategy than yours? After you’ve gone through all the series of questions and found answers to them, the next thing is a SWOT analysis. A SWOT analysis will help you analyze your business performance, identify things that went wrong (problems on the operational process, pricing, product-market fit among others).
You will also need to re-look at your target market so that you can focus your effort on what the customer needs and how best you meet their needs. Also, try to do a ‘postmortem’ of your past dealings and performance in the market with the intention of doing things differently this time around.
Another thing to do in order to save your ailing business is to create a plan (that is if you did not have a plan before) containing SMART objectives and highlighting where you currently are and where you intend to be over a certain period of time. Make the plan as detailed as possible; identify the steps or measures that you will need to take, how long the process will take, and lastly, who will help achieve all that. Give timelines for each activity, so that you are able to easily track your progress.
Also think about cutting costs, managing cash flow, business organization, and communication with creditors. One of the areas that are often overlooked is a business organization. This can be the difference between a successful business and a struggling one. A business that is not organized can result in countless losses which may include loss of time and money. It can also negatively affect your business reputation which in turn can lead to personal stress.
