Reduce Business Expenses and Improve Your Profitability
Cutting business costs is straightforward. But reducing expenditures without affecting the quality of your products or service is more of a challenge. Even something as minor as the quality of paper you use can reflect on your brand image. So, when you embark on a cost-cutting exercise, you must keep in mind the impact any reductions in spending will have on your customers. But there are ways that you can reduce costs without impacting on quality. Here are ten ways that you can cut back on costs while retaining quality.
1. Renegotiate with Suppliers
Start your cost-cutting exercise by looking at the vendors you use. Explore the market to look for alternative suppliers that will provide the same products at a lower price. Consider, too, if there are cheaper alternative products that you could use that would not compromise quality, and ask existing suppliers for discounts before you switch vendors. If current suppliers know that you are shopping around, they will probably be prepared to offer you a better deal.
2. Buy in Larger Quantities
Economies of scale apply to even the most insignificant items you purchase. If you buy in bulk, you will get lower unit prices, and you will cut down on shipping costs and the cost of processing purchase orders. However, you will need to weigh up the benefits of bulk-buying against its impact on cash flow, and you will need to factor storage costs into your calculation. However, bulk buying can bring significant savings for a business.
3. Improve efficiency
Look at how you use what you buy, as well as the price of the goods. Consider if there are any ways that you can reduce your usage of items through efficiencies or better training. Look at how your products or services are manufactured or delivered. Can you supply the same product or service using the same raw materials, but more efficiently?
4. Reduce Wastage
Wastage can occur in all parts of a business. Raw materials can be left unused if production batch sizes are not optimized. Paper is wasted if documents are printed rather than stored electronically, and materials can disappear because of theft. You can start reducing wastage by encouraging employees to be more mindful of what they use. Employees can be encouraged to be more careful about wastage by highlighting the environmental impact of waste. Improving security will help to reduce theft, and monitoring raw material wastage will help you identify ways of making your production processes more efficient.
5. Outsource Tasks
Some tasks are cheaper outsourced than completed in house. Cost savings can be achieved by making use of the thriving freelancer economy. When jobs like bookkeeping, recruitment, and website maintenance are outsourced, you only pay for what you use, and you reduce the time spent on recruiting and managing employees. Outsourcing operational tasks can save your company time and money nearly instantly while gaining specific areas of expertise.
6. Review Employee Productivity
Businesses must run lean in today’s competitive marketplace. So, unfortunately, you cannot afford to carry passengers. Review employees’ tasks and their productivity. If an employee is not pulling their weight, they should first be warned that they need to change their ways. If the warning fails to achieve the desired result, you will need to be tough and let the employee go. Look at employees’ workloads, too. Consider if a redistribution of tasks might reduce the total headcount.
7. Cut Energy Usage
Reducing energy costs can be an effective way to cut costs without impacting on quality, and it will improve your brand’s green credentials. Could you be using more energy-efficient lighting, for example? Would it be possible to meet some of your energy requirements by installing solar panels on your business premises? There are lots of ways a business can reduce its energy costs. In some cases, there may also be government grants available if your company becomes more energy efficient.
8. Review Finance Arrangements
Look into how you finance your business and see if there are less expensive forms of credit you could be using. Overdrafts, for example, are usually far more costly than fixed-term business loans. If you fail to pay off company credit cards on time, you will also be paying higher interest rates. If you have the cash available, it would be best to repay any loan early if you can.
9. Reduce Days Sales Outstanding (DSO)
If you have lots of overdue sales invoices, the shortage of cash that will be causing will be costing you money. While money is tied up in your receivables, you will be paying more interest on your overdrafts or other loans. The cash you could generate from outstanding invoices could also be potentially used to achieve more cost efficiencies. So, keep on top of your collections, and offer incentives for customers to pay you sooner.
10. Refocus Marketing
Do you attend a particular trade show merely because you always have? Have you analyzed the leads from that event to work out if attending the show is cost-effective? It is easy to get into a rut with marketing and spend money on marketing events and advertising without assessing the return they generate. Review your marketing spend and make sure you are only spending money on activities that create quality leads. You may find that you will get a higher return for less money if you refocus your marketing.
The Bottom Line
Managing business costs should be an ongoing process. So, the above ways to save money without impacting quality should not be a once-only exercise. Considering the above ideas will help you cut costs and improve your profitability. But, if you don’t monitor things like efficiency, wastage, and supplier prices, your costs will soon begin to creep up again.
About Universal Funding
Universal Funding is a private funding source that has funded thousands of businesses and more than $2 billion since 1998. We turn your accounts receivable into the funding you need through invoice factoring and can have capital in your hands in a matter of days.