How to manage costs in your small business

One of the biggest issues I have found lately is that most small businesses are struggling to be profitable. Quite a number of them make good sales and record revenue but the issue most of the time is that they are not able to manage costs to preserve value in the business and record healthy profits.

Sometimes, there will be easy and obvious savings you can make in your business, but often it is managing costs in the long term that will lead you to real cost management success.

Common areas where most businesses can save costs are:

Staff costs: You could outsource non-essential activities, or invest in new technology to replace resource-heavy manual processes. Another possibility is taking advantage of the flexibility offered by consultants, freelancers, or part-time employees, instead of hiring full-time staff. You should also check what others in your industry pay their employees to avoid overpaying new recruits, this must however be done with great caution as you want to still be able to attract great talents and retain them in your business.

Purchasing costs: Try and consolidate to as few suppliers to get better discounts on bulk deals, and look for cheaper suppliers more generally as a starting point. Other strategies you could try are forming a buying consortium with local businesses to drive costs down, agreeing long-term or high-volume supply contracts for discounts, and give individual employees purchasing limits to reduce overall costs. Negotiate for discounts and develop a good relationship with your suppliers. Build credibility that could make them offer you favourable credit terms and huge discounts on bulk purchases.

Production costs: Identify where you could use standard rather than individually-designed components to reduce overall costs as a starting point. Also, look at other processes that could be more efficient than the system you’re using, improve quality control to cut wastage rates, and increase production runs.

Finances:  Short-term financing should not be used finance long-term cash requirements or obligations. Apply for grants and subsidised loans – a growing number of alternative fund providers now provide funding with terms that the commercial banks will not. Take advantage of various government and non-government schemes that support SMEs and entrepreneurship to get funding support.

Premises: Can some employees work from home to cut costs? You can introduce hot-desking to save space and sub-let spare space. Install energy-saving devices to reduce utility costs, and see if you can save more space or improve efficiency by re-arranging the workplace.

Communications: Email is free, so use it instead of post services as much as possible. Look into an alternative phone and broadband deal, and work out whether you’re on the best tariff.

 

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