How to reduce your business expenses

Its always wise to take a look at your financials and see if there are any cost reduction opportunities. If you want to improve profitability in your business then cutting costs is arguably the fastest and easiest way. When your business is in the doldrums or you are experiencing a seasonal decline in trade its even more important to review costs immediately. If you fail to control your costs, these uncontrolled costs often run up debts. Paying off the added debt then becomes another cost that cuts further into your profit. The Business Minder says “Some business owners just wait too long until there’s nothing left to give. You can easily get into a downward spiral unless you do something now”.

In this article I have made a list of cost reduction opportunities for you to compare or benchmark against your own business. You should make sure that your team has some involvement in any steps you decide to take. Ensure that you have cost control systems that encourage the communication of best practice in your business. For example, benchmarking different parts of the business can be a useful way of identifying and reducing costs. Introducing a cost control system can bring immediate savings and ensure that you remain competitive in the longer term.

If your actual costs are higher than your budgeted costs this usually indicates some room to reduce costs. Lower costs may indicate good management, but might also reflect a drop in quality or potential problems. A spreadsheet is an easy way to record and compare costs on a regular basis, such as monthly.

Talk to your people

Get your employees involved in cost control. Give them an incentive to suggest cost saving ideas and ask what causes them problems or wastes their time. Employees are more likely to co-operate with cost-control initiatives if you explain the reasons for changes and they understand the benefits to the business.

Include your customers and suppliers. Once suppliers are aware you’re watching costs, they may start reviewing their fees and charges, especially if they know the other purchasing options available to you. Talk to your customers as you may be able to save costs by eliminating unnecessary features or frills.

Ideas to reduce costs

• look at cloud based software, such as Salesforce, PayCycle and Staffmate where you pay per annual user, rather than purchasing and maintaining expensive software in-house.

• Decrease inventory - stock control is a good way to streamline your business

• Decrease direct costs - make sure you have the right suppliers for your business andnegotiate for better prices or discounts for buying in bulk

• Decrease indirect costs - for example, try to minimise waste and errors in your business by training staff, or reduce marketing costs by using low-cost marketing techniques

• Decrease overheads - for example, save energy wherever possible or try find a cheaper energy supply company

• Benchmark key financials - benchmarking your business helps you compare your costs (like rent and utilities etc.) to similar businesses in your industry to see if you are paying too much

• Check supplier invoices for overcharging. Common examples are double billing, incorrect charges and missing discounts.

• Get rid of obvious overcapacity such as unused telephone lines and computers that are left on after hours.

• Measure the return on all advertising so you can eliminate what doesn’t work.

• Find alternatives to high priced suppliers, or negotiating discounts and better payment terms.

• Avoiding making frequent small orders. They waste time and may mean you miss out on bulk buy discounts.

• Redesign processes to eliminate duplication of effort and time. Make more use of technology and automation.

• Consolidate purchasing with fewer suppliers to get better discounts and build strong relationships Agree to long-term supply contracts or annual purchase volumes in return for lower prices and negotiate longer payment terms.

• Trim back your product range and increase production runs.

• Meet with your Banker to review your finances and reduce interest costs.

• Get the most out of your premises by sub-letting spare space.

Good planning helps you to anticipate problems and adapt as circumstances change. It allows you to set goals, measure performance and reduce costs. Set measurable, time limited targets to monitor how effectively your plans are implemented. Review what you've achieved so you can learn from your experience and make continuous improvement.

Reducing your business costs by 10%, or 20%, or 30% is a daunting task, but take heart. If you start now and stick with it, you will find enough ideas and the right ones to reach your goal. Small changes to reduce expenses and improve profitability can help prevent more painful cuts later on. Gary Chamberlain is a business consultant to businesses across Asia. He works with clients to improve their business models. Better business comes from planning and strategic thinking.