When considering cost reduction, we often tell our clients to forget about finding a single idea that would radically change the cost structure of their business or department, thereby solving their problem in one go. Instead, you should plan to reach your goal with a combination of 10 or more actions. Second, the degree of disruption caused by your reductions will usually be proportional to the degree of cutting you do. Therefore, you should tailor the reductions you pursue to your savings goal. Incremental ideas with minimal impact on the business can allow you to trim up to 10% of costs. Re-organisation ideas often eliminate the lowest-value activities, with moderate impact on the business and can help cut expenses by up to 20%. Cross-department and program-elimination ideas are usually necessary when you’re aiming for 30% or more, but they have the greatest potential to be organisationally disruptive.
What Costs to Cut First?
The 80/20 principle states that 80% of the outcome is caused by 20% of the effort. You can apply this powerful principle to limit expenses on those 80% activities that are not generating enough income for you. Examples of simple to implement costs savings ideas include:
Use Freeware and Cloud Computing: Almost every computer program you have purchased or subscribed to, has a free alternative – you just need to look for it. From free accounting and invoicing programs to web design, marketing and legal document preparation tools. You can save a lot of time and resources by adopting cloud computing. Employees can work remotely and use online collaboration tools to get the work done. For example, you can use Dropbox to share files, ProfitBooks for managing finances online, WebEx or Skype to have virtual meetings.
Go Green: Going green is not only a great PR move, it’s also a smart financial move. Simple moves such as keeping equipment on a power strip and turning it off when not in use will reduce your energy costs. Maximising use of online document sharing, signing documents electronically and printing on both sides of the paper, will reduce paper waste and cost.
Reduce the number of landline phones: If you are one of those businesses that still using landlines, it’s time to think again. There was a time when a landline phone was a necessity, but it’s no longer the case. Mobile phones are cheaper and offer much flexibility. You can use cloud telephony system to route calls between mobile numbers.
Buy used equipment: Save between 50-70% by buying used computer equipment, copiers and office furniture. You can find some great deals in local Facebook groups listing second hand items, or in local press listings.
Reducing Operational Costs
Once we are done with the ‘cosmetics’, it’s time to tackle some of the more costly operational items, for example:
Pool Purchasing Power: Find other small business owners and collaborate with them to save money on supplies and other goods. You can even save money while importing goods from another country, by partnering with other businesses to share the cost of a container or delivery truck which is normally accessible to only big businesses that have a large order.
Don’t Buy in Bulk: Often, small business owners buy things like office supplies in bulk because it seems less expensive to buy that way. For instance, if you buy a 100 sets of printing paper, your cost per set will be less than if you bought them one at a time. But you have to ask yourself: How quickly you will consume 100 sets of printing paper? More likely, you’d either lose them or find that most of them worn out before you get around to using them. As a small business owner, you could greatly reduce their expenses by buying only what you need today – not what you think you’ll need tomorrow. The focus should be to improve the cash flow.
Track inventory closely: If you run an inventory-based business, carrying less inventory means having less money tied up and more money in the bank. Begin monitoring inventory more closely to make sure you aren’t spending more than is really needed. If you manage inventory manually, consider adopting an inventory management software to keep better track.
Outsource Non-Critical Tasks: There are a lot of tasks that can be outsourced these days. Even before the COVID-19 outbreak, our company has been providing outsourced CFO services, non-executive directors, compliance outsourcing and HR related support particularly with employee relocations. Nowadays you can hire freelancers online through sites like Upwork or Fiverr who can take up various short-term projects to design company logo, do social media promotion, maintain accounts, generate sales leads and much more.
There are plenty of other areas in the business in which to reduce costs including banking & financing costs, treasure management, recruitment, logistics and more. With little imagination and experience, you can find out the way to cut costs and save money in your business. It always helps to talk to fellow entrepreneurs and business advisors and understand best ways to save money from their experience, and remember: doing it right costs less than doing it over!