Managing costs
Every business owner – no matter how big or small their business – wants to reduce their operating costs. And it’s not impossible. Here are eight strategies that’ll not only save you money, but improve the efficiency of your business.
Operating costs are the ongoing expenses incurred in the normal day-to-day activities of running a business. Lowering these costs is one of the most effective ways to save money and boost your business’s profits.
It’s an important exercise for any business, but especially those still dealing with the impacts of COVID-19. So, how do you do it? It starts with understanding what your business is spending money on before reviewing each activity in detail to see where you might be able to make cuts. We’ve outlined eight areas to help you get started.
A sure-fire way to save some cash is by looking into automating some of your business’s processes. In other words, you’ll want to identify processes that are currently being done manually and research whether they can be partially or fully automated with the help of software programs and services.
The idea is that by automating a process, it will free up time for employees to spend on other activities. Processes in departments such as accounting, marketing and communications, legal and HR are some easy places to start.
Similar to identifying business processes that can be automated, looking at outsourcing functions typically done in-house should also be considered.
In some cases, when responsibility is given to an employee as an add-on to their remit, they’re not properly trained in how to do it. Or they simply don’t have the capacity to do it as best they can. For this reason, outsourcing the work to an agency or freelancer with the time and skills required for the task can lead to a better outcome.
Another way to reduce operating costs is to scrutinise your business’s insurance. According to a 2019 Aon study, rates across the majority of its business insurance lines went up by 10% as insurers looked to replenish their returns after being hit by a string of natural disasters.
Although there is no one-size-fits-all solution to reducing your insurance rate, some key options companies can consider are alternative risk-transfer strategies, reviewing their existing insurance programme structure or demonstrating a better risk profile to the market.
If that sounds tricky, Aon may be able to assist you to get a better understanding of your company’s insurance rate
Another strategy to help you solve mounting expenses is to pay invoices on time. Late payment fees and penalties eventually add up if you let them slide, and can be easily avoided. Some vendors even offer discounts if you pay your invoice early.
Similarly, try to pay your loan or debt repayments on time to avoid additional interest payments.
On that note, another way to reduce operational costs is to take the time to look over the invoice or expense bill before paying it. Too many business owners make the mistake of paying bills without looking at the charges in detail – especially if the bill is set to automatic payment.
Often, owners discover they’ve been paying regularly for services they no longer use, like professional memberships. Once identified, these fees and dues can be cancelled immediately.
One of the biggest expenses for a business with an office is the fees associated with leasing it, cleaning and maintaining it – not to mention the utility costs. As such, ending your lease at the end of the lease period and allowing your employees to work remotely will free up a considerable amount of cash.
If your entire team working remotely full-time isn’t an option – consider leasing a smaller space or renting desks at a co-working space and staggering out workdays.
If you’ve been working with the same vendors for a while now, it’s worth looking into their rates and comparing them to other vendors who offer similar products or services. While the price differences could end up being negligible – particularly if there’s a fee for transferring your service – you might also find you’ve been overpaying, and the switch is worth it.
Another helpful tip: consider negotiating a discount by offering a vendor cash. It’s a win-win for both parties – you’ll be spending less, and they’ll be getting paid faster.
Finally, one of the best ways to reduce operating costs is to ask your staff for suggestions. Working so close to processes and using them day-in and day-out should mean they’re able to better identify inefficiencies and recommend potential tweaks.
Though a concern for every business owner, operating costs are not always given the attention they deserve. When you consider that a few simple tweaks alone can generate major results – saving you hundreds or, in some cases, thousands each year – they’re well worth looking into.
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Disclaimer: The guidance provided is general in nature. The guidance is factual information only and is not intended to be financial product advice, legal advice or tax advice and should not be relied upon as such. The guidance has been prepared without taking into account your personal objectives, financial situation or specific needs. Before acting on any guidance you should consider the appropriateness of the guidance having regard to your objectives, financial situation and needs. Before making any decisions, it is important for you to consider these matters and to seek appropriate financial, legal, tax, accounting and other professional advice.
As an expert in business management and cost optimization, I bring a wealth of knowledge and practical experience to help businesses navigate the complex landscape of operating costs. Over the years, I have successfully implemented strategies that not only reduce expenses but also enhance overall business efficiency. My expertise extends to various domains, including automation, outsourcing, financial management, and strategic decision-making.
In the article on managing costs, the author outlines eight key strategies to lower operating costs and improve business profitability. Let's delve into each concept:
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Operating Costs:
- Definition: Operating costs refer to the ongoing expenses incurred in the day-to-day activities of running a business.
- Significance: Lowering operating costs is a crucial method for saving money and increasing profits.
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Automation:
- Definition: Automating business processes involves using software programs and services to perform tasks that are currently done manually.
- Significance: Automation can save time, reduce errors, and free up employees to focus on more strategic activities.
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Outsourcing:
- Definition: Outsourcing involves delegating functions typically done in-house to external agencies or freelancers.
- Significance: Outsourcing can lead to cost savings by leveraging specialized skills and avoiding the need for in-house training.
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Insurance Review:
- Definition: Regularly reviewing and optimizing business insurance policies to manage costs effectively.
- Significance: Examining insurance rates and exploring alternative risk-transfer strategies can help reduce overall expenses.
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Timely Payments:
- Definition: Making payments, including invoices and debt repayments, on time to avoid late fees and penalties.
- Significance: Timely payments contribute to financial stability and may lead to discounts from vendors.
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Invoice Scrutiny:
- Definition: Thoroughly examining invoices before payment to identify and eliminate unnecessary expenses.
- Significance: Preventing payments for unused services or memberships can result in significant cost savings.
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Workspace Optimization:
- Definition: Evaluating and optimizing office space utilization, including considering remote work options.
- Significance: Reducing office-related expenses, such as leasing and utilities, can have a substantial impact on overall costs.
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Vendor Comparison and Negotiation:
- Definition: Comparing rates with current vendors and negotiating for better terms or discounts.
- Significance: Regularly assessing vendor relationships ensures competitive pricing and the potential for cost reduction.
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Employee Involvement:
- Definition: Encouraging staff to contribute suggestions for identifying inefficiencies and proposing improvements.
- Significance: Employees, being closely involved in daily processes, can provide valuable insights into cost-saving opportunities.
In conclusion, implementing these strategies requires a comprehensive understanding of business operations and a strategic approach to cost management. By adopting these practices, businesses can achieve significant savings and improve their overall financial health.
