How can your business cut costs !
When a company is in financial distress, whether it is a small business or a large company, they seek preventive measure to keep the business in good shape and to ensure its profitability. The global pandemic due to the COVID-19 virus resulted in a global economic fallout. In 2020 alone, the United States recorded the largest and most historic economic drop, giving small and big businesses no other options but to shut down. To prevent the situation from getting worse, a company must perform an effective business strategy and this is where cost-cutting comes into play.
Cost cutting is generally a business strategy that is often implemented by a company to save the business from losing more money due to many factors and to drastically increase revenue and profitability. While the process itself sounds simple, cost cutting or cost reduction comes with its own ups and downs, and it requires a strategic plan to make it work more effectively. It doesn’t just revolve around minimizing the workforce or changing suppliers, but creating a measurable plan of how these changes will affect your business in the long run.
While you might experience an instant increase in revenue, cost-cutting might also compromise the quality of your product. This will eventually create a negative impact on your business and you might lose all your potential customers in the future. Listed below are the things you can do to cut costs without affecting or compromising the quality of your product.
Negotiate with the Same Suppliers
The first thing that most companies do when cost-cutting is to look for a new supplier that can provide them with less expensive products. While this method is truly effective in boosting revenue and profits, it often sacrifices product quality. Apparently, using cheaper materials leads to poor product quality and you may not want to build a bad reputation in the market. You might consider renegotiating with your old-time suppliers and ask them if they can grant you discounts before you switch to a new vendor. If you have been a long-time buyer of their products, chances are, they can offer you a better deal.
If the proposed terms didn’t end up with a mutual agreement between you and your old supplier, then it is time for you to look for a less expensive vendor. However, this must be done with proper and extensive evaluation. It is important to look for a supplier that can provide you with the same quality material but at a lower price.
Waste Management
You might also want to evaluate your production. Regardless of the nature of your business, proper waste management and material consumption must be implemented. You may not realize it yet but your business is probably using and wasting raw materials more than what your company is supposed to consume. This wastage will have a huge impact on your expenses and your might find your business in financial distress in the future. Businesses that use raw materials like paper for documentation, for instance, can save more money by switching to digital copies.
An assessment should also be implemented to see if there are ways you can do to minimize the consumption of the raw materials or maximize the quantity you can produce from them. This will not just make your business more productive but you will also boost profitability. Quality, however, should still be a top priority. Just because you are trying to maximize the usage of your materials to increase the quantity of your products doesn’t mean you have to sacrifice the quality.
Employees Evaluation
Probably the toughest part of a cost-cutting plan is when you have to cut off some employees. An additional workforce means a drastic increase in production but it also means additional expenses. It means that you have to pay more salary. Unfortunately, some employees are not as productive as they should be. This is where the employee evaluation should take place. The initial assessment, however, should not always conclude with retrenchment. Employees should get fair warnings and give them enough time to improve their work, as well as their productivity.
If laying off staff is your last resort, you might also consider redistribution of tasks. This allows you to distribute workloads equally and fairly among your employees. Of course, it is still important to boost the morale of your employees to make sure that they are still motivated to work. Studies suggest that happy workers are proven to be more productive.
Manage Energy Consumption
Energy conservation is something you can do without compromising the quality of your operation. The increasing electricity bills can be financially painful to your business. Scaling back your energy expenses can definitely improve your bottom line and will lead to increased profitability without sacrificing product quality. This should come with a strategic plan. For instance, you might have to check for all your faulty devices, ventilation systems, and more. Evaluate the company’s air condition system for possible leakage, as well as the wiring system to see if they are grounded.
You might also consider investing in energy-efficient equipment. You can install energy-efficient lighting in your company to minimize your monthly electricity expenses. Also, make sure that the employees are turning off the machines and other equipment after their respective shifts. While this is a no-brainer, this is often overlooked by the staff.
Outsourcing Tasks
Did you know that it is more inexpensive to outsource tasks than to hire a new employee to perform that job? Outsourcing generally allows your company to focus more on other important aspects of the operation while still providing customers with high-quality products or services that they expect from your brand. Not only it helps freelancers but it also effectively reduces the control cost of operation. For instance, it is cheaper to outsource people who can do all the financial and accounting operations than hiring an actual accountant to complete the job. The same thing goes for HR functions, customer service, and IT operations.
Economic turndown is something beyond control and for small and starting businesses, cost reduction is the only effective solution to keep their operation. While this strategy will have a huge and long-term impact on your business, there are still effective ways you can do to cut costs without compromising your product or brand’s quality.
Featured Photo by Sasun Bughdaryan on Unsplash
Photo by Kelly Sikkema on Unsplash