How can you cut costs to the bone without harming your business?

Expenses
Expenses (Photo credit: Phillie Casablanca)

Every Rand saved in cutting costs goes straight to your bottom line. But how far can you go in cutting costs before it hurts your business? What steps could you take today to introduce a tactical plan for cutting away unnecessary expenses?

When I was growing up I was amazed at how my grandparents would live frugally. My grandmother would fold up plastic bags and stash them away in the draw, keep yoga cups and never waste even one single slice of bread. My grandparents had lived through the Second World War and had known times when everything including money was scarce.

Small business owners don’t have the luxury of spending money unnecessarily as do their giant counterparts in the world of big business. Giant, monolithic corporations can make expenditures that seem small fry to them but one of those expenses could represent the entire annual cost budget of a small business.

When income increases in our lives we tend to spend more. The Motley Fool online financial advice website recently covered some ways we’re blowing our money unnecessarily:
– designer clothing for babies or children. It might boost the appearance ego but children outgrow clothes and shoes quickly and tend to wear them out fast.
– Lottery tickets. They say the odds of winning on a typical ticket are 1-in-175 million which is less than the odds of getting struck by lightning, killed by a shark, an asteroid or being injured by a toilet.
– Speedy shipping. It’s agreed that emergency fast shipping is important but paying extra just to get your hands on the latest gadgets is a waste of money.
– Wasted energy. Energy efficiency programs can cut energy costs by a third if you use some of the recommendations and to-do lists from energy efficiency advisers.
– Wasted food. In the US the estimate is that people spend $500 per person each year throwing away unwanted snacks and meals. How much food do we waste in our own homes?

Watching your expenses in your small business or start up like a hawk will help you in these economic times. It starts with your overhead expenses. Yes, you may be stuck into a five-year lease for your premises but that doesn’t mean that you can’t reduce your energy bill and other services. Some small businesses in these tough times have simply waited for their lease to expire and either moved their business in to their homes or found suitable low-cost premises.

It’s also important to watch unnecessary expenses such as buying a printer or photocopier when you could rather pay the print shop or POSTNET shop down the road to make you a few copies. It’s when you do buy a printer or photocopier that your printing costs suddenly skyrocket.

In the area of cost of sales, this is where you need to negotiate the best prices and terms for the stock that you buy. Shop around. Find alternative suppliers. Get the best deal. In tough times like these forget the relationship you had for years with your supplier who’s been living comfortably off you. Ask them for a better deal or get someone else to supply you.

For a small business staff expenses can be a huge part of costs. But energised and enthusiastic staff who have high levels of productivity are valuable to your business. It’s foolish to cut back on expenses without harming morale and productivity. Put aside an amount where you can send staff for training so that they can do their jobs even better. Your customers will reward you for this.

Reducing costs in a business requires business judgement and discernment. It’s a fine balancing act between getting rid of the unnecessary but making sure you spend where it counts such as product quality, sales and marketing and staff.

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