As the world cruises through uncertain economic times, every increase in revenue or decreases in expenses significantly impacts a business’s profitability. It is a time when there have been mass layoffs, with unemployment predicted to hit a decade’s all-time high of 6%.
The good news is that there are actions that you can take to sustain your business through the pandemic without resulting in acts such as firing employees. Here is what you can do to cut your business’ operating costs.
1. Move your business to a cheaper office space or negotiate new lease terms
Moving your business to a cheaper space is a sure way to reduce your overhead costs. If your office rent has risen to a level you feel is unsustainable, it is time to move. Find a cheaper office with better lease incentives. Alternatively, you can consult a tenant representation firm like the Jeff Tabor Group to negotiate better lease terms in your current space.
2. Cut productions costs
Cutting costs of production should be implemented every day while running your business. One way of going about this is by utilizing all resources available and selling off unnecessary stuff. For instance, you can sell leftover cardboard and scrap metals instead of sending them for recycling free of charge.
Also, consider minimizing your office space usage by consolidating the space needed for production. This will leave you with ample free space which you can rent the property to other businesses. Lastly, you can set parameters to track and measure the operational efficiency of your business. Optimizing your company’s efficiency ensures that fewer resources are utilized to achieve set objectives.
3. Limit your financial expenditures and borrowing
Insurance policies account for a considerable portion of financial expenditures. You can revise your bank accounts and insurance policies for places to save money. For instance, you can switch to insurance providers that offer the best rates in the market or at least renegotiate with your current provider to match similar rates. Additionally, this is the right time to evaluate your insurance coverage and ensure that you are not over-insured or have duplicating insurance. If possible, you can consolidate your bank accounts and insurance policies for easy management.
Also, borrow only when it is really necessary. This should be done after considering the opportunity cost and the effects of loan debts on cash flow through a thorough cost-benefit analysis.
4. Use crowdfunding
The digital age has dramatically democratized business financing and made transactions seamless and fast. Crowdfunding can connect you with new investors and customers while lowering your costs of capital. It can also boost your capital when launching short term projects. There are several sites that can help you set up a crowdfunding appeal.
5. Evaluate your marketing strategies
Do you evaluate your marketing strategies regularly? If you do, you will identify gaps that can help you reduce expenses significantly. Consider all marketing forms in your strategy and calculate the total costs of running a complete marketing campaign. You will notice areas where you are investing too much money and workforce without results.
Brainstorm with your marketing team and determine how you can eliminate non-profitable marketing methods and build on modern, cost-effective marketing methods such as digital marketing and networking.
6. Put full-time employees on part-time contracts
This is a much better option than laying-off employees when in a financial crisis, considering that many employees wish to work part-time at some point in their lives. Companies such as KPMG have been offering employees part-time contracts as a way of cutting off costs. Getting employees to reduce their working times by a day or two per week significantly reduces your salary expenditure.
7. Change Vendors
Retaining a vendor for an extended period denies you good bargains available in the market as the vendor will rarely change the prices or offer you any discounts. If you are in a fast-growing niche, it is prudent to regularly research new vendors and compare their prices with those of your current vendor. You can renegotiate for a new contract with your current vendor without severing your ties as most will be willing to settle for a bargain than lose a loyal customer.
8. Remove unnecessary perks
While offering employees perks is an excellent way to motivate them, it is entirely unnecessary when the business is facing financial challenges. You can replace bonuses with other options such as time offs and comprehensive benefits. Furthermore, you can skip that $2000 end of year party and replace it with a small bonus for each staff member to enjoy with their friends and family.
9. Outsource business tasks
The global business market is saturated with talented professionals, and you can outsource some services, such as IT services, at a lower cost compared to in-house hiring. If you are operating on a shoestring budget, you can outsource your business tasks to freelancers who can charge as little as half of what you would have spent on an in-house department. Freelancers come in handy when running a small team with time-consuming tasks such as virtual assistance. Outsourcing allows you to concentrate your business’s core activities.
10. Get cheaper credit card options
You may be losing a significant amount of money to fees and high-interest rates through your credit cards. You can avoid this by;
- Setting up a bank account specifically for small businesses.
- Choose a business credit card with rewards that you can use for your company, such as airline miles.
- Pick a credit card merchant with the lowest interest rates.
- Get a credit card with the point-of-sale options and built-in perks.
11. Cut employee wages
Reducing employee wages should be among the last methods to reduce the cost of running your business. Tough times call for harsh actions, but you should ensure your employees understand why a pay cut is necessary. If you are on the payroll, you should be the first to take a pay-cut. The decrease should be even across all employees’ classes.
Many factors should be considered when setting cut limits. Depending on the current circumstances, a pay cut of 5% to 20% is deemed decent. However, you should be reluctant to enforce this on your low-level employees.
The objective of running a business is to make a profit. One sure way to increase your business profits is to reduce business costs. The above tips will help you identify areas you can cut your business costs.