Ways to Reduce Your Business Expenses
In uncertain economic times like the current COVID19 crisis, every cent counts, and every small increase in revenue or reduction in your business expenses can make a difference to profitability.
Running a successful business involves the ability to maximise sales while keeping your expenses low. While this sounds simple, the challenge is often how to identify and eliminate ‘unnecessary’ expenses.
As business owners, we seek to reduce costs to as minimal as possible while ensuring we are able to perform and deliver to customers’ expectations. In today’s blogpost, we look at ways in which you can potentially improve on your business practices to reduce your expenses.
1. Cut Production Costs
One of the most obvious ways to reduce your business expenses: reduce your production costs and optimize your resources. Selling left-over material, for instance, may help to save more money instead of disposing them. Aim to reduce production waste, or if you can, try to create additional products out of the waste (e.g. using leftover fabric to create accessories).
2. Lower Supply Expenses
Every business requires office supplies to carry out their daily activities. Lowering supply expenses is also one of the simplest was to cut back on your business expenses. A few things you can do quickly:
· Keep all your supplies in one place: scattering the storage of your office supplies across several locations often reduces the visibility of what you already have, and you may well end up buying supplies that you actually do not need.
· Make an inventory of your office supplies: keep an accurate inventory list of your office supplies, and repeat this process every three to six months so you know exactly what you have. If you have a large business, it may be necessary to cycle your inventory checks monthly, or even bi-weekly.
· Look for the best prices: let your vendors know you are price shopping and look beyond your usual pool of vendors. There are numerous online and offline vendors and distributors who can give a substantial price markdown if you buy in bulk. Items like ink cartridges, toner cartridges, paper, notepads, pens etc. can be purchased on an annual basis and it is possible to reduce supply expenses by as much as 40% if you buy in bulk. If you think you can’t afford to purchase in bulk on your own, find some friends and business associates to purchase necessary supplies in a single wholesale transaction.
3. Optimise Your Marketing Efforts
Advertising is easiest – but the costliest – ways to build your customer base and establish your brand presence. While it may not be possible to do without paid advertisements for some business (e.g. retail and clothing), it can be worthwhile to look at cheaper alternatives to achieve the desired objectives.
· Referral programmes: build your customer e-mail list and implement a referral programme. Recommendations from current customers is far more likely to result in sales than traditional marketing.
· Use in-house or freelancing resources: you can significantly cut your marketing costs by doing most of the work in-house, or engaging freelancers or interns to oversee your marketing efforts.
· Social marketing: increase your social media use to reduce traditional marketing. As a matter of fact, studies have shown that businesses can improve their brand visibility and user experience by as much as 80% while significantly reduce the number of hours spent per week via social marketing.
4. Go Green
Recycling and energy optimization strategies go a long way in reducing your business expenses. A typical business discards 40% of office paper used within 24 hours. By using services like Google Drive or DropBox, you can significantly reduce paper use at the office. Switching out traditional fluorescent lighting tubes for energy-efficient bulbs and LED lights can be costly upfront, but they go a long way in helping to save money over time.
5. Outsource Non-Core Activities
Some business administrative functions, like book-keeping, is an important part of day-to-day operations, but it can also be additional work and a source of stress for you and your staff, since book-keeping mistakes can be costly. There may also be other business processes like staffing that are important, but not a part of your core business functions. In such cases, you would actually be better off outsourcing these functions to professional service providers who can help you get the job done quickly and accurately, without the need for you to hire additional headcounts or for current staff to take on roles they may not have the skills or capabilities (or even bandwidth) to perform.
6. Pay Your Invoices Early
You would be surprised at how easy it can be for you to negotiate better terms and get discounts with suppliers if you pay your invoices early. In challenging times like this, suppliers struggle harder to get cash at times because of late payments by their customers, and as such, many are willing to give discounts of better credit terms for customers who offer to pay earlier than usual.
7. Harness Technology
Cloud-based software and Software as a Services (Saas) enable you to enjoy productivity and utility software efficiently without paying a high cost for the benefits. Most SaaS solutions design their packages around the number of users or number of expected transactions, and with options for monthly or annual subscriptions, and therefore allows you to budget your expenses better.
You can make use of virtual meeting software like Zoom and Bluejeans to help minimize travel expenses, especially in the current climate where social gatherings are largely restricted. While we are not looking at eliminating personal interactions completely, not all meetings need to be done in-person to get the tasks done.
Technologies like Google Drive, Monday and Slack can help you better manage staff communication, document and task collaborations, and can serve as alternatives to paper documents or even meetings.
Rental costs are a major component of your business expenses. You may not realise this, but many businesses stay in the same location for years because of habit and convenience and often may not be the most ideal arrangement – especially if your business is not location-dependent. If this is the case, you may consider reducing a significant part of your business expense by moving to a lower-rent area. You may even consider co-working or serviced office locations if you don’t need a large office.
9. Optimise Space
Take some time to look at your current use of physical space. Overflowing storage, inefficient placement of furniture and equipment or having too many supply storage spaces are common space wasters. You might also look at the use of space vis-à-vis staff functions: do you really need everyone in the office, or can you make do with hotdesking and alternate work-day arrangements? Also, do you really need a large meeting room, or can you move your copy and fax machines into the room to free up some space?
In some cases, it may even be possible that you are underutilizing space at your premises: you may have a warehouse space that could potentially be used for another office that you can sublease (depending on your lease agreement).
10. Review Expenses Regularly
Ensure you have financial visibility over your revenue and expenses, and regularly review your expenditures (e.g. once every quarter). Doing so will reveal what your biggest expenditures are, and where are the sources of potential savings without compromising you other financial objectives.
For small business owners, cutting expenses isn’t always easy especially when there are no economies of scale for very large savings, or with limited bargaining power with suppliers or vendors. You have to be a little creative and try new ideas that you may never have considered, but remember that looking for ways to reduce costs is actually part of continuous improvement – and every little effort helps to enhance the profitability of your business.