6 ways to reduce the cost of running your business

While prospects for SMEs may be looking better, many cash-strapped business owners still need to be cautious and look for ways to reduce the costs of running their businesses. Here are a few ideas:

 1. Analyse your premises :

Could you work out of town from a cheaper (maybe industrial) area or from home? Perhaps you could encourage staff to work from home or hire contractors responsible for their own work space. Technologies such as the cloud, Dropbox or Skype mean it’s never been easier to keep in contact with remote team members.

Can you cut down on inventory so you can downsize your premises? Rather than renting premises, can you buy a house in the right zone and use this instead? This way, you would be investing for yourself rather than helping someone else with their retirement plans.

2. Evaluate staff :

Do you really need all staff members? Can you restructure and manage without? Remember Parkinson’s Law that “work expands so as to fill the time available for its completion.”  Could you use casual, on-call workers or self-employed contractors? For example, if you have an employee sales team more interested in their expense claims, why not replace them with commission-only sales agents? In fact, if you get your marketing right, you might not need a sales team.

3. Review administration :

Are you getting value from your admin team? Often overlooked, the cost of your administration can spiral out of control if poorly managed. Review what they do and how they do what they do. Consider outsourcing all or part of your admin, which can reduce costs considerably.

4. Assess finance costs : 

There are two ways to keep costs down: firstly by keeping the working capital tied up in your business to a minimum and secondly, by making sure you are minimising your finance costs by using appropriate sources of finance. To reduce the working capital, ask yourself these questions:

  • Do you have a good system to collect accounts receivables promptly?
  • Are your inventory levels as low as possible?
  • Do you invoice customers promptly?
  • Do you accept down payments, instalments, or charge up-front for parts or disbursements?
  • If you’re billing time, do you have an integrated timesheet and billing system to capture all time and ensure unbilled work in progress is recognised and minimised?

To reduce finance costs, use a mix of retained profits and your own funds (the best and cheapest source of finance) along with longer-term, low-interest bank finance. Avoid expensive overdrafts, credit cards, borrowing money from the IRD, hidden high-interest “interest-free” or leasing deals, or getting stung for late payment penalties.

5. Gauge inventory :

Do you know exactly what inventory you are holding? Can you run a report showing the last time you sold each of your inventory lines and how many months’ worth of inventory you are holding? In these days of cheap software, there’s no excuse not to use a good inventory control system, which will help cut your inventory losses, as well keep your inventory levels to the minimum.

 

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