8 Effective Ways to Cut Business Costs was written for Playlouder by a contributing author. Please note that contributing opinions are that of the author. They are not always in strict alignment with our own opinions. -Joe
In essence, there are two things you need to do in order to see your business thrive. You need to find ways to grow your business and yield increased revenue. And you need to find ways to cut business costs.
Most people tend to focus on the growth aspect, as it seems far more exciting and compelling. But, in practice, cutting business costs is not only recommended but necessary.
When you consider that according to the US Bureau of Labor Statistics, 18% of small businesses fail within their first year, while 50% fail after five years and approximately 65% by their tenth year in business: it's easy to see why keeping a keen on both revenue and expense is so critical.
In this article, we will take a more in-depth look at how you can manage your business costs and bring them to a minimum.
Different ways to cut business costs
One of the common mistakes people make when cutting business costs is that they become thrifty with their business. You should understand that, in order to run a good business, you need to value quality—both in your workforce and in the quality of materials that you use.
So, don't think of cutting business costs as merely finding ways to cut corners. Instead, understand it as a necessary overhaul, where you force your business to be as productive and cost-effective as possible.
Let's start with a straightforward example of how you can potentially lower your business costs. Namely, if you are dealing with production, there are likely ways in which you can reduce costs.
The waste that you generate from production could likely be sold to recycling companies. While this doesn't technically lower the cost of production, it does give you an efficient way to get a bit more revenue from it.
If you really want to cut production costs, you need to perform some in-depth analytics. Outline important aspects of your production, and see which parameters you can alter.
More often than not, there is some aspect you can change in your production that will yield decent results. But, finding that aspect is easier said than done. You'd be wise to either consult with more experienced production managers or look for advice online.
Unless you've worked in HR, you are probably unaware of how inefficient managerial staff can be. The bigger the company is, the more room there is for managers to sub-perform.
Don't get us wrong, though; there are always quality managers loved by workers and upper managers alike. But you'd be surprised at how successful people can be in tricking their bosses about their performance.
Therefore, if you have a lot of managerial staff and wish to cut business costs, you need to go over it.
While there are many ways to do so, we advise you to go from the ground up. Provide a way for your workers to critique your managers anonymously. And don't let your managers know what the critiques are like.
Good managers won't have much to worry about. While these critiques aren't objective, they will give you a good idea of how to keep an eye out for them. If you have people in your company that you trust completely, you can consult with them. If a manager isn't doing their job, see if they can change or let them go.
It isn't uncommon for large companies to hire third-party agencies to analyze their managerial staff. As we said, you'd be surprised at how hard people will work in order to appear as hard workers.
And even if you feel you are up to the job, crafty, manipulative managers will slip under your radar. So, if you really want to know who isn't pulling their weight in your company, consider hiring a professional.
If you take out insurance policies to cover your business, you might have some leeway in lowering business costs. You can look to get a different insurance provider (one that offers better rates).
Or you can look to consolidate multiple insurances into a single, and therefore cheaper, policy. Ideally, you will carefully go over each policy and ensure that you have proper coverage. You also need to check that you are not overpaying or over insuring yourself.
Efficient time strategies
There are many areas in modern business where the “time is money” phrase holds true. Lowering business costs is by no means an exception, as the more effective you are with your time, the more money you will save.
Motivating your employees to use their time wisely and to follow a premade schedule is always advisable. You should set expectations for how long various business tasks should take. And then provide incentives to workers if they finish faster.
If you have regular meetings, try not to chitchat or talk in circles. Instead, outline clear agendas, and keep your meeting short and sweet. Teambuilding and mingling should be separate from business meetings.
Focus your business efforts
Depending on what your business is about, you might feel motivated to widen your market. After all, what better way to draw in new customers than to offer a new product or service?
But, while this is true, know that doing so will increase your business costs. So, if you wish to lower them, you need to do the opposite. Focus your business on what you are already doing.
By doing so, you will find ways to optimize your business and ensure that it is as cost-effective as possible. And, if you have any innovations, it will be far cheaper to try them out in an established business environment.
Look for tax relief
If you are operating in the U.S., there may be tax deductions or relief that you aren't making use of.
For instance, a surprising number of businesses are unaware that you can get tax relief for paid sick and family leaves under FCCRA. This was introduced as a part of the COVID-related Tax Relief Act of 2020.
Depending on the type of business you run and the state in which you operate, there are likely multiple other tax relief possibilities that you can make use of. So, consult with the experts and see that you do.
Use the available office space
Almost all businesses need to use some storage space. While it is possible to talk with a storage company and rent out a unit, you really ought to make full use of your office space. At least if you wish to reduce the running costs of your business.
The main thing here is to avoid making your office too crowded. Yes, the more items you store, the less space you need to rent out. But if the office space becomes too crowded, it will inevitably lower the overall performance.
So, consider the available space carefully, and see which potential storage options you have available.
Marketing is a big part of any business. In fact, the bigger the brand is, the more they need to spend on marketing in order to maintain its brand presence. Therefore, there are likely various ways to cut business costs if you simply take a closer look at your marketing practices.
In most cases, the main reason for sub-par marketing is outdated practices. What was once effective likely became less so as time went on. And if you haven't updated your marketing in a while, you should do so.
Look for modern marketing trends and see how they correlate with your brand. Again, research is key. So, don't shy away from consulting with experienced marketing managers.
While there are other ways to cut business costs, these give you a decent idea of how to approach the whole ordeal.
Keep in mind that every business is different. Consider yours first, and only then try to apply the method that seems most likely to yield results.