Every penny you don’t spend in your business adds to your bottom line. Here are twenty tips to help you cut costs.
In my last article I explained how reducing your costs can sometimes have a bigger impact on your profitability than increasing your sales – and can be a lot easier to achieve. Below are some processes and strategies to implement to cut costs in your business.
- Review the prices you’re paying and negotiate with suppliers. Technology has opened up many opportunities to improve efficiency.
- Get suppliers to tender for your business.
- Look for innovative ways to improve processes. Research your industry to find out what ideas are available.
- Check industry benchmarks to see what the top performers are achieving. Investigate how they achieve their margins.
- Lock in good exchange rates with forward cover on foreign currencies.
- Manage margins by regularly looking at the percentage of your cost of goods (COGS) so you know when it’s time to renegotiate or seek alternatives.
- Use purchase orders – don’t allow everyone who works in your business to spend money. This one piece of paper could save thousands of dollars as people ordering goods or services on your behalf may not know something you do about a change, potential obsolescence or upcoming cash flow problem.
- Forecast your sales ahead of time; with foresight you may be able to negotiate better prices for larger quantities of goods or packaging.
If you’re in a service-based business:
- Reduce materials on jobs by managing wastage and write offs. Review ordering methods and introduce systems like job cost sheets to track the costs of goods used on jobs.
- Maximise the efficiency of yourself and your contractors. For example, check any non-chargeable time. Could this work be inexpensively outsourced, freeing you up to focus on chargeable work?
- Have a quoting/estimating system and measure actual costs against them for each job to see how accurate your estimates were and improve your accuracy over time.
- Have a system for following up quotes and tenders – the quicker you get started the quicker you finish. Review operations for efficiency and ask yourself “Am I getting deals over the line quickly?” Create a sense of urgency.
- If you outsource work, have one person managing jobs with a good understanding of status and progress to ensure all jobs get finished efficiently.
- Manage labour resource allocation and track the amount of time contractors spend on jobs. Schedule jobs and travel efficiently.
- Make allowances for variations to material prices on jobs to avoid hold ups.
- Have good quality control to avoid rework and investigate write offs.
- Use checklists and templates to maintain standards.
- Keep equipment maintained to avoid down time.
- Set yourself key performance indicators (KPIs) for jobs such as number of quotes issued versus jobs won and lost.
- Use a job management system to keep information easy to access and available for improving job profitability.
Are you a penny pincher? If you have any more tips to share about how to cut costs, please do so below.