Most businesses in their infant stages can track and control business costs “optimally”, but as the business grows, the word “optimally” begins to disappear if not checkmated. However, there are other reasons like inflation that can make business costs increase.
In all, managers are looking for tips to reduce business costs, and we have the tips just for that in this article.
1. Need to Have Control of Business Costs
With different aspects of the business calling for attention, the manager might not keep up with all the expenses, giving room for inefficiencies. This sees the business wasting money by either paying too much or buying what it doesn’t need.
Inability to control business costs will affect your cash flow negatively, which can make your business go bankrupt or not make it profitable like it ought to be. Having control of your business costs will put your business in a better position.
2. How To Control Business Costs
· Evaluate Current Costs
Having a good grasp of all expenditures, both major and minor costs. Major costs like salaries, equipment, IT, utilities, marketing, etc. should be broken down for a better understanding of how to reduce costs. For minor costs, know how much you’re spending, how and when it is spent.
Detailing all these costs is the first step.
· Observing Spending Habits
When you’ve evaluated your current costs, you can infer your spending habits and trends over a period. For example, comparing the current costs to a year ago. This will prompt questions like, how much increase occurred? Why did it increase? Which areas of the business did this increase occur? Did any costs go down and why?
· Engage Your Employees
To successfully control business costs, you need your employees. Engage them by asking how your business can reduce costs, ask them the areas that waste time and/or resources. You need full buy-in from your team.
If reducing cost will lead to redundancy of some employees, communicate it such that they understand the action it is for the wellbeing of the business. Some roles can be outsourced or use the service of freelancers. You can even adopt the working from home strategy.
· Engage Your Customers and Suppliers
For your customers, are you providing them with a service or product they don’t really want, this is because it costs you to provide them with these things. And the best way to find is by conducting a survey.
For your suppliers, make sure you’re not being over or double-charged, also make sure your inventory is properly monitored, which can be easily done with a comprehensive business management software (ERP) that saves time and money. You can also do bulk purchases that also save time and money.
Building good relationships with your suppliers can help you to negotiate good deals.
· Other or Overlooked Areas
Leave no stone unturned when making your assessment. Money can leak in all areas. Though, some areas are more pronounced than others. For example, in utilities, you can save energy/electricity by turning off appliances or fittings when not in use.
Another aspect is transportation, meetings can be online, saving travel costs in the form of lodging, feeding, outstation allowance.
You can also introduce a new way of doing things, though it might take time to adapt and some people will resist change. Do not hesitate to take tough or unpopular decisions.
3. Going Forward
Having identified the areas you want to reduce business costs, it is important you have a cost-cutting plan with clear objectives, targets, and phases so that you’ll be able to evaluate the progress and milestone. To also be up-to-date with your finances and operations, you’ll need to have business management software (ERP) to help run your business effectively and efficiently.
Contact SOFTCODES (a trusted Sage Business Partner with over 25+ years of experience) to deploy business management software (ERP) for your business.
Also, there is nothing with merits that doesn’t have its demerits. In a bid to control business costs, you end up reducing costs too severely or in the wrong areas which negatively affects the business. Sales can drop as a result of a drop in the quality of products or services.
The morale of your employees when the motivating bonuses are removed or if their workload increased because of redundancy that was done. When taking the tough decision, it is advised you think of the implications and get the buy-in of your employees.