Michelle Writes for Adiona: Why Mastering the Art of Cutting Costs Could Save Your Business
The pressure on business leaders to bring in revenue can keep them up at night. Whether it’s hunting for new market opportunities, trying to upsell to existing clients or pounding the phones to cold leads, it can feel that the only way to succeed is to generate a constant flow of incoming cash. But are many companies giving as much attention to reducing their spending? It’s stating the obvious to declare that the more money you spend the more you have to make but if you read through the business press or attend business seminars it seems that cost-cutting, the less-than-sexy aspect of business, is rarely on the agenda. Talking about reducing costs sends up a red flag that your company isn’t succeeding and, for those you work with, the very idea of a cost reduction exercise can raise concerns about impending redundancies or cuts to perks. The truth is that efficient cost cutting won’t threaten the business or the workforce, it will sustain it.
Hiring a full-time cost manager isn’t an option for most small business so the responsibility falls to everyone to review the way money is spent and find savings. But be realistic. If your hard-working team is already maxed out, they’re not going to find the time or motivation to add this activity to their regular workload. Don’t think short-term or you’ll find your team taking a swift look through the supplier list and conducting an online search for cheaper alternatives before they tire of the challenge. Just changing suppliers could cause more problems that it resolves if quality or reliability takes a nose-dive.
Cause4 went through a cost review recently – it was eye-opening and sometimes a little painful. It took a year to complete the review as we looked through everything from stationery to utilities to tax credits. We assessed all our resources, including the space we rented and we were in for a few surprises. The stationary bill which we had argued was at its most efficient was reduced by £1,000 a year. We found out that because we invested in digital systems we were eligible for almost £30k of innovation tax credits. A year in and we’ve been able to reduce costs against turnover by 7%.
How’s it done? Here are the lessons we learned in order to cut costs without jeopardising our business or our people.
- Work as a team – be aware that some people find the very idea of cost saving unsettling. Share your goals and the purpose of the cost cutting activity, involve everyone and be open about how the money saved will be spent. Everything should be considered and the more people who can offer suggestions the more ways you’ll find to save.
- Keep the quality – don’t spoil the ship for a ha’p’orth of tar. Maintain the quality especially in your professional services supplier like your auditors, accountants or lawyers. Reducing expenditure could mean your business gets assigned to a more junior member of their team rather than the senior partner you’ve grown to rely upon.
- Who can you partner with, and how? – explore options for joint procurement. You might qualify for VAT relief by sharing back office services for example. Or you could find savings by sharing bulk purchases or databases with another small business.
- Do consider the worst-case scenario – draw up a contingency plan in case things don’t turn out as planned. If you lose clients or your income drops would you still be able to sustain your organisation? Imagine reducing your income by 25% or even 40%. What would you cut? It’s a great way to prioritise your expenditure.
- Be careful with the ‘easy to cut’ – some people find the easiest cuts are marketing and staff training but both can have a negative impact on your business’s operations. A good marketing plan can help generate vital inbound queries and new business. Don’t go quiet when you should continue to promote your business. And be cautious before you cut planned staff development. The impact on morale of the team might be hard to manage.
Cost reduction can be creative. And, without the unnecessary expenditure, you’ll find your business making profit more easily. If you think about cutting costs with the same energy and imagination as you think about new business, I’m sure, like us, you’ll be surprised what you discover.
Read the original article here.