Running a business can concur hefty costs, in fact, one of the most common causes of business failure is not having enough money to meet expenses, especially in the initial 6 to 12 month period. There are techniques in which you could adopt to reverse the trend of rising business costs.
Vikas Rana, founder of Mediatimes, Brisbane business directory , states that most businesses are overspending by up to 20 percent.
“That’s the average amount we save for our clients. But, even without professional help, you might be able to cut your overall costs by 10 to 15 percent.”
Vikas recommends following seven-step process that can assist in cutting overall business expenditure.
- Analyse the business costs– Firstly, make an accurate and comprehensive list of all business expenses.
- Rationalise your purchases as much as possible– When you have a number of locations, it may be cost efficient to combine necessary purchases. An ERP (Enterprise Resource Planning) system will help maintain ideal efficiency.
- Benchmark the business expenditure– Industry associates such as suppliers may be useful in sourcing benchmark information. Vikas states that, “Very broadly, you could expect your telecommunications costs to be about two to three percent of sales, IT should cost about $1,000 per employee per year and office supplies $400 per employee per year. If you’re paying more, there might be a good reason, but you need to know for sure.”
- Associate with suppliers– It is common for businesses to view their suppliers as an enemy, due to cost cutting. By working with them rather than against them, you will benefit more financially. Vikas suggests to ask them how to reduce your business costs, “For example, if you could reduce your costs to them by making purchases online or accepting online invoices, they may be prepared to pass these savings on to you.” It is of course important that your business maintains a positive relationship with suppliers, although, they shouldn’t be so good that you feel uncomfortable putting their service to the test. “It makes sense to find out what the competition is offering, but talk to your current suppliers before making a switch, they might be prepared to better it,” explains Vikas.
- Be cautious about buying items in bulk– It may seem like the savings are worth it when buying in bulk, but there are a lot of factors that you must consider before doing so, including available storage, potential wastage and cash outlay. Vikas explains, “Some products have a limited lifespan and your needs may change – for example, you might have to replace your printer before you’ve used the supple of the toner or ink you bought for the old one.”
- Manage your employee turnover– The biggest expense to your business are your employees. “The most cost effective strategy is to minimise turnover, so you should take great care to employ the right people and do your best to retain them,” notes Vikas. Though, do not pay above their worth. Interviews conducted upon resignation have suggested that less than 25 percent of past employees leave a position due to them being displeased with their wage.
- Monitor the success of your business– Businesses often fall back into paying more than they need to when they fail to continually assess the business cash flow. A system should be established where a particular person regularly monitors the success of implementing cost-cutting strategies. “Giving the project a name, or linking the savings to a specific capital investment, can help to create a culture of cost management within the organisation, “ recommends Vikas.