There isn’t an idiom which is more relevant today than “A penny saved is a penny earned “ that is claimed to be quoted by Benjamin Franklin, a wise man! This sounds simple & benefits of implementing this are obvious, but studies have shown that a large number of businesses operating today are nowhere near maximising their cost saving opportunities. Why is cost cutting important? This may seem like a fairly obvious question, however, there have been countless successful businesses that have failed because they let the costs of operating their business spiral out of control. In fact, some of the biggest global corporate collapses have occurred due to this very reason. So, if it can happen to billion dollar corporate giants, it can also happen to small & medium business operations. It’s one of the main reasons why 80% of all businesses fail. Cost cutting can be a very quick way to boost your bottom line.
Where do you start?
See if your banking & related costs are optimised. It’s imperative to know if your bank is charging you right. Your interest rates on CC/Overdraft, FX, & trade fees- are they at par with what your industry peers pay? Try identifying if your product mix is on the money & in line with what your business needs that could save you lots of money, adding to your bottom line. If possible, hire professional consultants who could handle this efficiently and stream line costs.
Paying staff the right way
Is there a better way you can be rewarding your staff? A lot of business owners are now looking at restructuring the way they pay their staffs in order to reduce costs and provide greater incentive for greater output. It’s a well known fact that sales staffs have been paid increased commissions based on increased sales for many years, but there are a growing number of astute business owners who are now starting to pay their other non-sales people based on the level of sales an organisation generates. This has the effect of having everyone focused on increasing sales so it becomes a far greater team effort across the board. Companies that have started to do this have noticed an increase in customer satisfaction levels, faster delivery times, more efficient debt collection procedures, greater efficiency in communications, a higher level of office morale and countless other benefits.
Are you getting the best from your vendors
When was the last time you sat down with them and attempted to negotiate better payment terms or an improved volume discount? You should sit down on a regular basis and analyse all your suppliers. Make sure you competitively quote your suppliers for everything your business needs. You will be amazed how quickly people will negotiate with you. Remember, it costs at least six times more to find a new client than it does to do business with an existing one. Your suppliers know this and simply asking them for better terms or cheaper rates can save you a lot of money.
There are countless businesses that open too early or stay up too late just because that’s what everyone else is doing. Have a closer look when you’re making the majority of your sales or when you receive most of your customer enquiries, (the daily journal in the Time Management section will help you to track this). Once you have done this for a few weeks, it will become apparent that there are certain time periods that are costing you money simply to be open. For a lot of retail stores this can be between 9 and 10 on a Monday or Tuesday morning. Even if you reduced your work week by these two hours, that can result in significant savings
Choose the right business premises
Where you choose to locate your business will have a major impact on your operating costs. It is one of the most important things to consider, even if your business is well established. When looking at locating or relocating your business it’s important to ask the following questions:
- Will customers be coming to the business or will I be going to them?
- If customers are visiting me, what impression do I want to create?
- Where do my customers come from?
- Do they need easy parking facilities?
- Do I need to be highly visible?
- Will I be employing staff?
- Is it easy for staff to find car parking or public transportation?
- How far away are your business premises from where you live?
- Does your business require partitioning? Offices? Storage space?
- Can you access your business premises after hours?
- What is your budget?
- How long is the lease for?
- What happens if I break the lease?
- Is it better to buy the business premises?
When you’re thinking of locating your business you need to be very clear on all of the above questions.
Small can be cumulatively big !
Once you have had a close look at some of the major expenses in your business, it’s then time to have a very close look at minor expenses. These are the incidentals you may be spending money on which your customers or people are indifferent to. A lot of business owners spend money on incidental items that don’t really add any value to the business. Have a look at the following list of items and ask yourself if they would really be missed if they disappeared from your business tomorrow.
- Magazines and newspapers
- Expensive tea and coffee
- Couriers and express post services
- Expensive packaging
- What are some of the items in your business you could be living without?
Similarly, have a closer look at various other operational costs that could be avoided without affecting the productivity or efficiency of the company. Always remember “A penny saved is a penny earned”.