The most obvious strategy for staying in the black during tough economic times is to control costs. But how do you know where to cut down without compromising on the quality of your products and the efficiency of your business?
When looking for ways to manage expenses, you first have to determine if you are incurring losses, breaking even or just barely making a profit. If you are losing money, it may make sense to trim enough costs to offset those losses.
Create reports every week to examine both your income and expenses. Make adjustments as needed, especially where you are spending more than you've budgeted for. Areas important to your business's revenue, such as production and marketing costs, should be among the last items cut.
Consider trimming your expenses in the following areas:
- Stock: Review your inventory and determine which items are not selling well. Consider discounting the products with slow turnover and only place orders for products with committed orders
- Cost-sharing: Contacting other small businesses or associates to ask if they'd like to share the expense of certain products to qualify for bulk discounts. They may be other ways to work together, such as sharing delivery routes or costs
- Suppliers: Call your longtime suppliers and ask whether you can negotiate payment terms and/or get a discount
- Water and electricity: Examine these accounts and find ways to reduce wastage. Switch lights and equipment off when not in use, use motion sensors or automatic timers for lighting and adjust your thermostat settings. Not only is this good for saving money, but you'll be doing your bit for the environment in the process
- Staff: If an employee leaves, consider leaving the position open. You can split the duties among other staff members or enlist the help of part-time or temporary employees. Communicate with your employees about why you're doing this, especially those who now have a bigger workload
- Office supplies: Cancel unnecessary subscriptions and services. When re-ordering supplies, look for discounts and consider downgrading to cheaper options. You can reduce costs on items such as paper by using e-mail
- Office space: This may be a good time to simplify and consolidate your operations. Consider either leasing or subleasing unused office space, moving to a more affordable location or renegotiating lease terms
- Travel: Consider using mobile computing sources, web meetings and other virtual collaborations to save on travel costs
If you need help reviewing your expenses, contact your banker or another trusted financial advisor. By taking steps to manage your expenses today, you can instill positive habits that can serve your business well into the future.
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