30 ways to cut business costs
Mon 21 July 2008 - 5:24 pmCashflow
As business conditions slow and business costs increase, it’s becoming increasing difficult to rely on earnings growth to improve the bottom line. Check out these simple business cost cutting ideas to improve profit and cash flow.
Astute managers are more often looking to unlock the profit opportunity that lies hidden within their businesses costs. After all, the impact of a one per cent savings in costs can equal two per cent in profit or 10 per cent in top-line sales on typical margins.
Fortunately, you don’t have to do it by yourself. There are consultants available to help you cut costs and find extra profit. They provide an impartial review of a company’s expenditure, examining potential ‘profit leaks’ and identifying areas for savings that, once achieved, can be used to fund business development or go to directly improving profit and cash flow.
“Most companies do not have the requisite staff resources to be able to regularly review expenses and reduce costs or to put aside time for monitoring of the market place and of their suppliers,” says Denis Stevens, managing director of Expense Reduction Analysts Australasia. “Consequently most, if not all, organisations overspend significantly on their business operating costs, in some cases by as much as 75 per cent.”
To give you an idea of the kinds of things that a company like Expense Reduction Analysts takes into consideration when investigating a cost management solution, we’ve put together a list of 30 ways your business might find extra profit.
Starting with the big picture…
1. Centralise purchasing
You may be buying the same goods from different suppliers! Coordinate the spending of different departments to maximise discounts through bulk purchasing power.
2. Cut the paperwork
Request monthly, consolidated invoices to improve cash flow and reduce administration costs.
3. Ask for a reason
Don’t accept a price increase without challenge.
4. Get a second opinion
Obtain alternative quotes on everything. Advise existing suppliers that the business is being tendered, and give them a chance to reduce their prices.
5. Call in a negotiator
Never allow the person in daily contact with a supplier to negotiate price. Use the good cop/bad cop approach, calling in someone else, so that emotion is not involved in the process. This also allows the day-to-day relationship to remain unaffected.
6. A beautiful friendship
Building good relationships with suppliers can result in reductions in costs. Ask them for suggestions on how to improve the way in which you work together. Could ordering weekly instead of daily allow them to reduce their own admin costs and enable them to pass the savings on?
7. Improve cash flow
Reduce your stock levels, and encourage suppliers to hold stock.
8. Review product specification
Ensure that products being used do not exceed requirements. Can you use second-hand pallets for transportation? Recycled toner cartridges?
9. Establish a caring culture
Caring is a pre-requisite to effective cost management. If staff and executives are complacent, it’s difficult to implement savings.
10. Commit to stamping out unnecessary costs
Lead by example and demonstrate to employees that you care about saving money, even on the smallest items.
And now for the detail…
11. Competitive banking
While it’s easy to be complacent and leave all your banking in the hands of one institution, it pays to shop around. Many banks specialise in different areas of expertise and you can use that knowledge to serve your needs, and save you money. Plus, you won’t be fully dependent on one bank.
To ensure your cleaning contract, or in fact any contract, meets your needs, make sure the contractor knows what you expect. Let them know if there is a problem, but also give them feedback if things are going well.
Understand how your couriers charge their clients. Some charge per consignment, others per parcel. Work out which service will be most effective for you and, if necessary, switch suppliers.
14. Expiry can be expensive
Be aware of the expiry date on contracts for services such as electricity, gas, and phone. Suppliers often revert to a much higher penalty rate once the contract expires.
15. Freight costs
Consider handling costs and packing when putting together a consignment. Does it fill one container, or is it made up of several items that can be packed on pallets so that you can minimise transport handling costs and stock damage?
16. Investigate insurance
Allow time to investigate and negotiate your insurance policy before the renewal deadline. Make a note of when policies are due; many brokers wait until so close to the renewal date to contact their clients that they leave little time for negotiation.
17. Making space
Do not allocate a specific car park to a specific staff member. Have seven percent fewer car parks than the number of staff entitled to them. On any day, you’ll find that there will be a certain number of absentees; you don’t need to pay for empty spaces.
18. Office supplies #1
Decide on a comprehensive product range and stick to it. Be wary of stationery cupboards. While they may seem an easy way to deal with this ‘chore’ item, they cede control of the ordering and stocking to the stationery company.
19. Office supplies #2
Try suppliers’ own-brand products. This can reduce costs by up to 30 percent.
20. Order it back
Request that all staff hand back the unused items of stationery lurking on their desks. You may find that you do not need to re-order for many months!
Printed cartons are expensive. Consider using plain ones, and sealing with printed tape instead.
22. Postage #1
Clean up your database to reduce returned mail and coordinate your marketing mail-outs to exceed threshold quantities.
23. Postage #2
Investigate alternate methods of information delivery. It may be that your message can be delivered via an alternate method to conventional mail (eg e-mail), and there are companies that specialise in distribution methods to suit your preferences.
24. Printing #1
Always use standard paper sizes.
25. Printing #2
Order larger quantities at one time, but don’t get caught out. If you only need 7,000 brochures, it’s still cheaper to order that number at $3.30 per unit than it is to pay for 10,000 at $2.80. Companies over-order to get the price down and then don’t use the stock.
26. Records management
Don’t continue to pay for the storage of boxes simply because you haven’t worked out whether you need to keep them. Review!
27. Telecommunications #1
Be aware of flag falls or connection fees per call, and your call duration, when assessing telecommunications contracts. Most businesses have low call durations, which means the flag fall is a large part of the cost of the call.
28. Telecommunications #2
Have you achieved any real savings on your phone bills over the past 12 months? How many lines do you really need? Asking yourself some questions can save you a lot of money.
29. Travelling light
Savings can be found in managing your travel well. Avoid last-minute bookings; you can save more than 30 percent by booking weeks, not days, in advance.
30. Bad debts
If your debtors aren’t paying on time, sign up to CreditorWatch to expose bad debtors and be alerted when the businesses you trade with fail to pay.
-Expense Reduction Analysts (www.expensereduction.com) is a world leading cost management and procurement consultancy. Established in the UK in 1993, Expense Reduction Analysts operates today in 27 countries.