Cut Costs to Increase Profit... #41
- Adrian Dionisio - business737 owner
- Nov 14, 2021
- 7 min read
Updated: Apr 10, 2024
Cutting costs and reducing expenses is one of the easiest and most effective ways of increasing your profits. Cutting costs is the one guaranteed way of keeping more money in your pocket and bank account. When you cut costs from your business it goes straight to the bottom line – you keep 100% of all your cost savings. This is why it makes sense to maximise cost savings at every opportunity.
Keep a close eye on expenses
How many businesses have failed because expenses were too high? Countless have done so. The money saved on cutting costs will go straight into your pocket as profit. Would you prefer $1000 per month in increased sales or reduce costs by $1000 per month. The latter option will be pure profit.
Instead of scrutinising expenses, businesses often allow their costs to spiral out of control. This often leads to ruin and is one of the main reasons why businesses of all sizes fail. Expenses have a tendency to creep up to revenues, squeezing out profitability in the process.
Being attentive to your costs and expenses will generally mean your are analysing your numbers, policies and procedures. Naturally this will mean you have greater in depth knowledge, understanding and control of your business. This will set you steadily on the route to success. You will also make yourself less susceptible to the adverse effects of any downturns or unexpected events.
Cost Saving How2
1. Suppliers
Periodically you should analyse and assess all of your suppliers. Negotiate better payment terms or an improved volume discount. Don't be hesitant, they will negotiate with you. Remember, it costs six times more to find a new client than it does to do business with an existing one. Your suppliers know this. Simply asking them for better terms or cheaper rates can save you a lot of money.
Contact current suppliers and explain you are forced to cut current expenses. State that you prefer to continue a long term relationship with them but need a 20% reduction in exchange for a long term commitment. Will they accept this commitment? Test the waters. Contact all of your other vendors and offer them the same.
Due to the highly competitive business environment of today, you have a good chance to successfully negotiate with many of your current suppliers. Do not overlook the expenses you incur for insurance, landscaping, janitorial, trash pickup, office supplies , maintenance and service repairs. All of these are negotiable and none of these current vendors want or can afford to lose your business. The worst that can happen is that they say no or they reduce it by less.
2. Finances
Have you shopped around to see what banks are giving you the best rates? Banks are becoming more and more competitive and you can realise huge cost savings. Ask for lower rates – credit card services is a cut throat area and you can easily get one year interest free.
Ask your accountant to look over the way your business is structured because
you may be losing 1000s in tax savings. Consider a set up where you pay yourself a salary and the remainder as a dividend. This can achieve massive tax savings.
3. Trading hours
Take a close look at your hours of operation? Many businesses open too early or stay open too late. Often simply because they follow what everyone else is doing. Analyse when you're making the majority of sales or when you receive most of your customer enquiries. It should become apparent that there are certain time periods that are costing you money simply to be open. Even if you reduced your work week by these two hours, that can represent a savings of over $1 or $2 thousand dollars over twelve months.
4. Staff remuneration
Is there a better way you can reward your staff? By restructuring staff payments, businesses can reduce costs and provide greater incentives for greater outputs. Consider paying non-sales people based on the level of sales the organisation generates. This has the effect of having everyone focused on increasing sales, so it becomes a far greater team effort across the board.
Businesses that have started to do this will notice an increase in customer satisfaction levels, faster delivery times, more efficient debt collection procedures, greater efficiency in communications, a higher level of office morale and countless other benefits. Is there a way you could look at doing something similar in your business?
5. Personal expenses
There are always ways to cut personal expenses and save on costs. Insurance is a good place to start because it is a highly competitive and cut throat industry. You can easily save 20 -30%a with car, medical and home insurance. The same applies to internet, cable, tv and mobile phone providers. If you have been a loyal and long term client make sure to play that card and get the discounts your custom deserves.
Go through you bank and credit card statements – both personal and business – and be ruthless. Cancel whatever you don't really need for example fees for groups you no longer attend / subscriptions / services etc.
6. Outsourcing
Outsourcing various activities can save you time and also money.
IT, Accounting, Bookkeeping, Marketing – can all be outsourced to great effect. Consider outsourcing abroad for increased cost savings. You can find educated, skilled excellent English speakers who can go far beyond your expectations. If you're frequently overwhelmed and severely overworked, outsourcing is a great way to regain your time and getting back your life.
7. Encourage employee cooperation
To make cost cutting work you must have your employees involved and onboard. Gain their cooperation by explaining that you have to make cuts to maintain profitability. It is important to outline the costs to be cut and to explain the reasons why certain actions have to be taken. Consider offering a reward or incentive to staff who fulfil their duties to help cut costs.
8. Ask employees for input
Don't ignore feedback and suggestions from your employees. If you have employees ask them for their recommendations for cost savings. It is more than likely that they will have ideas for you to consider. Perhaps offer a % of the annual savings to spur their participation and innovation.
9. Business premises
A business location has a significant impact on operating costs. It is one of the most important things to consider, even for a well established business. When looking at locating or relocating your business there are important questions that need to be answered; will customers be coming to the business? What impression do you wan to create? Do you need to be highly visible? Is there parking facilities and what about the transportation links? What is your budget?
When you're thinking of locating your business you need to be very clear on these type of questions.
10. Eliminate the invisible
After scrutinising major expenses in your business, it is prudent to start to look at invisible expenses. Many business owners spend money on incidental items that don't really add any value to the business. There are incidentals you may be spending money on which your customers or staff are indifferent to. There are many things that can be eliminated that would not be missed such as magazines and newspapers, expensive tea and coffee, couriers and express post services, expensive packaging and so forth. Always question the items in your business you could easily do without.
COST CUTTING Quick List
Complete and send out invoices as fast as possible.
Get as many pre-payment or cash on delivery agreements as possible. If necessary offer a discount.
Renegotiate your lease to a lower rent, or a temporary lower rent while business is slow.
Pay no bill before its time. Don't pay any bills until they're due.
Exercise dormant lines of credit.
Move "back home" and work out of the garage, spare bedroom, or even the dining room table. You can do this temporarily until business picks up again.
Shop around for low-cost storage space. Get rid of excess stored, sell it or give it away. Don't pay storage costs for things you really don't need.
Keep track of your competitor's costs. When fees are changing, don't get left behind and lose valuable assignments from overbidding, or income from underbidding.
Don't offer lower prices to a client that isn't price sensitive. Not everyone gives assignments to the low bidder. Some don't even do competitive bidding.
Know your costs on appraisals. The high fee jobs may not be the most profitable. It may be more profitable to set up referral alliances with appraisers in other geographic areas, rather than spend the time traveling and doing extra research on an area you're not familiar with.
Use part-time support staff.
Have one person attend a seminar, and then later "show and tell" the rest of your staff.
Use an outside payroll service to cut bookkeeping payroll costs. Or, do it yourself by using a simple software program.
Broaden staff responsibilities.
Use interns or work experience students for research, setting up databases, etc. They work for credit or a low salary on a short term basis and can work on specific projects, or on general research.
Get free or low cost consulting from a local college business school's small business consulting programs
Shop for the best prices. No one pays full retail. Purchasing supplies in bulk may be worthwhile.
Track the results of your marketing efforts by including a specific offer they can't refuse and a clear call to action telling how to take advantage of the offer, along with a coupon, download, subscription, special code, or other low-cost device you can track to discover what works best. Then change or ditch anything that doesn't generate enough leads or sales.
Referrals are the best source of strong clients… visit every networking organization in your area (Chambers of Commerce etc.) and introduce yourself, your business, and your quality. Most organizations allow you to visit at least a couple of times before expecting you to join. Some never do. Nothing will sell your business more than a highly engaged owner out discussing business. Make sure to return the referral favours as much as possible.
To wrap it all up...
It's simply good business sense to reduce costs at every available opportunity. It can improve your ability to raise capital. It is common for owners to focus on developing new ways to build their business. It is important to remember that the one guaranteed way of keeping more money in your bank account is by doing everything in your power to cut costs at every available opportunity. Cut costs and unnecessary expenses.
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