Most small businesses benefit by focusing on cost reduction strategies that don’t impact business growth. When implementing business process improvement, cost reduction is a good technique as it results in savings that improve profitability over time. It is a misconception that costs are paired by reducing staff alone. There are many other ways to lower these costs.
Reducing staff becomes the first and most straightforward solution to reduce costs immediately, but what about financial costs, capital equipment, and rent? Here are some pointers for small businesses to cut costs without affecting their bottom line.
Assess Every Aspect Of Your business
Take a 360-degree view of your business operations and you will notice that there are recurring costs related to almost all aspects of it. Consider the different major business activities for which you incur expenditure, such as:
- Marketing and Advertising
- Maintenance of facilities
Now, take a comprehensive look at the profit and loss statement, say for a period of six months. Arrange the expenses on various activities in decreasing order to identify them by expenditure from the highest to the lowest. This can throw some light on the areas where significant cost reduction is possible. Design cost-saving strategies for those areas where you can maximise the returns.
Keep Business Finance Separate From Personal Finance
When you start a business, it is imperative to keep business and personal finances separate. Your business is a freestanding legal entity. Differentiating between the two provides benefits such as tax deductions and writing off business expenses that result in cost reduction. Mixing the two can disrupt both these aspects. It is necessary to organise your business books to avoid any audit and legal problems that can prove expensive.
Compare Actual Expenses With your Budget
Your budget is your guiding light. You need to keep track of actual costs and expenditures against the allocations made in the budget or budgeted costs. The comparison indicates the divergence and overruns, if any. If the cost overruns are significant, there is a greater scope for savings.
Working out the reasons for discrepancies, if any, indicates why the divergence occurred. It also allows you to take corrective actions to reduce costs that result in savings. It is a good accounting practice to compare costs regularly, even monthly. Use a spreadsheet to record business expenses for a periodic review.
It helps to take a look at business performance. Benchmarking your business with similar businesses shows the why and how of your performance. You can identify the strengths and weaknesses of your business, then work out cost-saving solutions and reset your goals.
Implement quick saving techniques
- Focus on productivity and efficiency at all levels. Ensure that your staff uses work and time management techniques to improve productivity and avoid waste of resources.
- Identify unnecessary expenses and remove them.
- Assign priority to bulk ordering and bunching small orders to derive cost-saving benefits.
- Negotiate with suppliers to bring down the cost of supplies. Find effective substitutes for high priced resources and suppliers or work out better payment terms and discounts.
- Consider outsourcing payroll functions to cut those costs.
If you visualise any potential damage to business operations in the near future, carry out research to find solutions to take timely measures. It will result in huge costs savings.
- Update technology to improve business processes and productivity.
- Share your extra office/workspace to earn additional income or consider an option to move to a more cost-efficient location.
Achieve The Perfect Balance
Many more ways to save costs can emerge through a closer analysis of costs, expenses, and revenue. It is important that your cost reduction strategies are tested for consistency and operational efficiency.
While focusing on dramatically reducing costs, you need to calibrate the strategies. It helps to ensure there is no impact on the quality of your product or service and that your staff isn’t demotivated. Successful cost reduction maintains or improves the quality and effectiveness of business operations.
For effective cost reduction opportunities & efficiencies that will improve your bottom line, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.
Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777