Business – whichever types it is – in the bottom level is all about making profits. The sale of the product or service is one aspect that determines the profits in a big way. But there is one more step, when implemented intelligently and selectively, can bring down the cost of business considerably. That is, the ways to cut costs in your business is not increasing the profits alone but also to cutting the overall cost of the process. A cost cutting review once in 1-2 years can do a world of good for any business on earth.
Though not a hard and fast rule, let us see some conditions which if properly followed can cause remarkable effect on your business costs in bringing it to a lower level that it was earlier.
- Profits are the ultimate aim in any business. Hence if you find that your profit margins are dipping continuously, that is valid reason to ponder on. Perform a detailed study on the reasons for the shrinking margins. If it is the rise in direct costs, see if you can pass it directly onto the customers. Also consider redesigning or reformulating the product if such an option is inevitable. If your business sells multiple products, see the overall margin and in such a case, if any of the products is doing really bad, consider stopping its production if it is not worthwhile to carry it forward again.
- Payroll costs can be a constant draining factor of your profits. Carefully and technically made plant layout can reduce labor needs. The cost incurred in designing the plant can be offset in future savings on payroll costs. If your business is of varying nature, using subcontractors and temporary employees can be a productive option.
- See if the telephone costs and shipping expenses are quite high or if there is any room for cost cutting in these aspects. It may be occurring in small numbers, but remember that it is a continuous affair.
- The 80/20 rule says that 80% of the revenues will be generated by 20% of the customers. Hence it will be wise if you could serve the rest 80% effectively. Remember, the longer it takes to get paid, the more will be the risk of loss associated. Hence review the credits closely.
- Constantly monitor the inventory levels. If you any obsolete stock can be reworked. Else sell it off for salvage.
- Make a thorough review of fixed assets. In this world of technological advancement where new machineries are making its way in matter of days, see if it is better to buy or lease major assets. If it is a less frequently used one, better not to buy it.
- Keep a flexible purchasing policy. When appropriate, don’t hesitate to switch suppliers. Use this attitude to renegotiate with the existing suppliers.
- For cost reduction exercises, the participation of the employees is crucial. To encourage their participation, implement a bonus program proportionate to the percentage of cost saved.
And finally, constantly keep an eye on the company’s overall performance. Be updated about company’s financial status and study any pitfalls in detail. The bottom line is that not to wait until some financial crisis develops and become big enough to handle. It is all about preventing and preparing than repenting and repair later.