Keeping expenses down is critical for a business, but just as important is identifying what costs can be reduced.
Lowering expenses does not necessarily mean always opting for the cheapest alternative. In fact, if you aren’t careful, this can become quite costly as you struggle with and end up repeatedly replacing substandard equipment and supplies. As a business owner, you need to be hands-on when it comes to your books, even if you have hired someone else to manage them. Knowing where your money is coming from and going daily is the first step to making the right frugal decisions.
The Role of Cash Flow
A huge part of what makes a business successful is how money management is approached and executed. It’s important to think in the long term when it comes to saving. Trying too hard to get whatever is cheapest today can mean spending a lot tomorrow. This applies not just to purchasing things that are of low quality but also things such as buying in bulk.
It’s often much cheaper to purchase supplies in a larger volume. However, sometimes decisions are driven by a lack of cash rather than not understanding why spending more up front is the better strategy. For this reason, it’s important to ensure that you have adequate cash flow in your business. In addition to trying to always keep a cushion of money, be prompt in invoicing people and following up on unpaid bills so that you can stay afloat.
Spending to Save
Your business is an investment. You want to avoid, as the saying goes, throwing good money after bad, and the way to do this is to start with good money in the first places. Look at where you’re using outdated, difficult to use or otherwise subpar equipment or processes and work out what you need to do to change this. Ideally, there will be multiple benefits to your business.
This is the case if you are considering a more sustainable approach to transportation.
You might be doing this because you’re worried about the greenhouse gas emissions that your fleet contributes to. You can read more about how eco-friendly transportation doesn’t just save the planet but it can actually save you money, lowering your company’s operating costs. There’s one other advantage: sustainability is hot, and many customers love knowing that they’re working with a green company. This is one way you can distinguish yourself from your competitors and better establish your identity.
Employee-Related Costs
There are a few different things to look at when it comes to employee-related expenses. Hiring and training new employees isn’t cheap, and it can be tough to quantify the value of genuinely dedicated and talented employees. Therefore, retaining quality employees should be a priority, but this can be easier said than done. Employers often misunderstand what motivates employees.
It’s hard to keep good employees without paying them a competitive salary, but beyond that, you may need to talk to your employees themselves to figure out what motivates them because everyone is different. For most people, certain benefits are non-negotiable, but employers sometimes spend money on items that are costly but that won’t have a substantial effect on retention if they are eliminated. On the other hand, eliminating perks that employees love can cause a big dip in morale.
Do people really love that company car or gym membership that you offer? If you’re getting truly tough about your bottom line, ask yourself things like this: is anyone going to leave the company because you get rid of the free bagels and doughnuts in the break room? You might think the answer is of course not but eliminating it could look petty and as though you don’t value your workers.
Customer-Related Costs
As is the case with employees, it’s important to evaluate what you are offering your customers that they truly appreciate and what things they could take or leave. If you’re renowned for your customer service strategies, you’d better keep that department strong, but if you raise your shipping costs a couple of dollars, is it really going to lead to a mass exodus? An area where you really can’t afford to scrimp is when it comes to making the purchasing process as smooth as possible, whether your customers are online, offline or both. Look for friction points and do your best to eliminate them.