{"id":5394,"date":"2020-10-09T12:08:44","date_gmt":"2020-10-09T08:08:44","guid":{"rendered":"http:\/\/fairsystems.com\/?p=5394"},"modified":"2023-04-20T12:59:31","modified_gmt":"2023-04-20T08:59:31","slug":"cost-reduction-tips-for-smes","status":"publish","type":"post","link":"https:\/\/fairsystems.com\/cost-reduction-tips-for-smes\/","title":{"rendered":"Cost reduction tips for SMEs"},"content":{"rendered":"

[vc_section][vc_row lg_spacing=”padding_bottom:100″][vc_column][vc_column_text]About half of all new businesses fail within the first five years. While most entrepreneurs focus on increasing sales to stave off collapse, lowering expenses is equally or perhaps more important when trying to achieve or maintain profitability.<\/p>\n

Cutting business expenses requires some tough choices and trade-offs, but it doesn\u2019t have to be a painful process, nor one that fundamentally alters your business plan. Many, many business owners before you have put to use these straightforward strategies to trim overhead, streamline operating expenses, and ultimately increase profitability.<\/p>\n

Here are some strategies on business cost optimization to implement today and save money tomorrow:<\/p>\n

Process-related<\/h3>\n

Use the 80\/20 principle.<\/h4>\n

Pareto\u2019s 80\/20 principle states that 80% of the outcome is caused by 20% efforts. You can apply this powerful principle to limit expenses on that 80% of activities that are not generating enough income for you.<\/p>\n

Think beyond the cash, Barter.<\/h4>\n

When that cash supply gets low, which is a common thing in the case of small businesses, don\u2019t close the door to getting what you need. Consider the age-old practice of bartering. As with any negotiation process, the worst answer you can get is a simple no, and you might be surprised by how quickly you\u2019ll hear a yes.<\/p>\n

Track inventory closely.<\/h4>\n

If you run an inventory-based business, carrying less inventory means having less money tied up and more money in the bank. Begin monitoring inventory more closely to make sure you aren\u2019t spending more than is really needed. If you manage inventory manually, consider adopting an inventory management software to keep better track.<\/p>\n

Be more aggressive with past-due accounts.<\/h4>\n

Make a list of customers whose payments are past the due date. Start calling them and follow up on the payment. Get aggressive and express your urgency with them. If you do it right, some customers might release the payment on the same day.<\/p>\n

Master time management.<\/h4>\n

Time management skills such as prioritizing, setting S.M.A.R.T. goals, and prior planning can make all the difference in your process of business cost optimization. And while some time management apps help with productivity, others allow you to maximize the company work for better results.<\/p>\n

Goal-setting, decision-making, focus, communication, and even patience \u2014\u00a0 are all among the time management skills for a business owner to develop. Time is money, after all. Once you learn how to handle it in the interests of your business, the financial benefits won\u2019t take long to reveal themselves.<\/p>\n

Finance-related<\/h3>\n

Re-examine your business budget.<\/h4>\n

No proper financial management is possible without a working budget. With a clear idea of what money you have and spend every month, you\u2019ll understand what business costs to reduce effectively. Add a business budget examination to your to-do list every month to see what\u2019s going on and consider all possible optimizations. Timely audits are what works best to ensure you keep out of debt and forecast which months you may be tight on money to re-organize all the business expenses accordingly.<\/p>\n

Review all expenses, even the little ones.<\/h4>\n

You can\u2019t manage something which you don\u2019t track. If you are not keeping a record of all your expenses, you should start doing it right now. A good accounting software can help you categorize expenses and help you take measures to reduce them.<\/p>\n

Cut financial expenditures.<\/h4>\n

Businesses lose a lot of money on things like high fees on business credit cards, late loan payments, or crazy insurance policies. By taking a closer look at your financial accounts and automating as many financial processes as possible, you can optimize business costs by far.<\/p>\n

First, implement an online payment system and set up alerts to avoid overdue bills. Then, ask your credit card processing company for a lower rate, especially if you\u2019ve been with them for a long time. Visit your bank and ask what options they could offer business owners like you. It wouldn\u2019t cut expenses with a wave of a wand, but it\u2019s a smart step to your financial health in the long term.<\/p>\n

Restructure your loans.<\/h4>\n

f you have taken a loan and its installments are causing a burden on your monthly cash flow, just talk to your bank. Most banks can give you an option to either pause it for a specific period or help you restructure to increase the tenure and reduce the installment. Alternately, you can talk to other banks for lower interest rates and improve your cash flow.<\/p>\n

Manpower-related<\/h3>\n

Hire smart, inexperienced people.<\/h4>\n

Experience is important but it’s not everything, and it comes at a cost. More and more technology companies now hire fresh college grads and then train them for a month or two. It turns out to be a lot more cost-effective than hiring an experienced person. For critical work scenarios, you have no option but to go for experienced people but in most cases, the strategy of training freshers works.<\/p>\n

You will not only gain a monetary advantage by providing an entry-level salary but you will also benefit by having employees who are enthusiastic, up-to-date on the latest technology, nimble, and eager to learn.<\/p>\n

Hire freelancers.<\/h4>\n

A remote worker and a freelancer are far from the same. While the former is your full-time employee who\u2019s just absent from the office, the latter has no employment obligations at all. Freelancers work according to their schedule, rates, and fees.<\/p>\n

Think about whether you do<\/em> need full-time designers, content writers, accountants, or other specialists. Working with freelancers saves your costs on employee vacations, training, sick leaves, insurance, end of service, and more. As a rule, freelancers take less money for their services than in-house specialists, so you\u2019ll save some costs here too.<\/p>\n

Get interns.<\/h4>\n

Extending the above cost-saving idea, hiring interns could also bring in cost savings in terms of salaries. Normally, interns work for 2 to 6 months depending on their academic requirements. There are a lot of non-critical activities that can be delegated to interns. They are enthusiastic and full of energy. Interns are good for activities like social media promotion, back-office administration, market surveys, or other short-term tasks.<\/p>\n

Reward your profit-makers.<\/h4>\n

It may sound a little contradicting, but spending to save does make sense in some cases. I would suggest taking the proactive approach of rewarding profitable behavior from both your employees and your customers. What does that look like? You can start by making small gestures, like an occasional free lunch or a treat, to boost employee morale and keep the work environment positive.<\/p>\n

It could also mean offering bonuses to employees who meet certain cost-saving targets set for that year and offering deeper discounts or value-added packages to your most loyal customers. If you\u2019re spending a little money on the people who do the best work for you or purchase the most product from you, you\u2019re simply investing in a relationship that will ultimately bring more profit to your business.<\/p>\n

Venue-related<\/h3>\n

Go paperless.<\/h4>\n

These costs seem minimal at first, but they can add up to actual business expenses. Paper, ink, supplies \u2014 why not replace them with digital invoices, bill payment systems, and professional document creators?<\/p>\n

By going paperless (unless printing is inevitable), you can save up to 60%<\/a> of office supply. Also, it\u2019s eco-friendly: save your office space from tons of printed sheets, which anyway go to shredders sooner or later.<\/p>\n

Relocate to a more affordable area.<\/h4>\n

Think if you do need a huge physical location for your business. Analyze how much space you rent now: Is it worth paying for it? If possible, downsize your office or shop, consider open-plan workplaces, or just move to a more affordable area. Such changes will reduce your business costs by far.<\/p>\n

Also, think of shared workplaces if you have some unused space in the office. Turn it into co-working or consider subleasing it. It will save some expenses and (why not?) may lead to new partnerships with companies that\u2019ll share the space with you.<\/p>\n

Think of a virtual office.<\/h4>\n

If acceptable, convert your business to a home-based one, with remote employees and freelancers (both mentioned above) in the staff. It will allow you to cut corners on office rent. Consider co-working spaces or conference halls for business meetings if needed.<\/p>\n

Or, think of a virtual office: when your whole range of business functions are available through the internet. Not only do they save your time and provide low technology costs, but prevent the need for an office lease and other utility payments.<\/p>\n

Marketing-related<\/h3>\n

Consider free yet effective marketing strategies.<\/h4>\n

Yes, your business needs a stellar marketing strategy to generate profit. But if your focus is the paid ads and media buying only, get ready to say goodbye to your business costs.<\/p>\n

Optimize your strategy with low-cost but high-results marketing. Consider free social media promotion, ask customers to write reviews, get free backlinks from your network, etc. The methods are many, and you\u2019ll see a relatively quick response with minimal business costs. Cheaper alternatives include:<\/p>\n