A business comes with constant gambles, no matter how calculated your risks maybe. You could be the greatest manager or business owners out there, but there always comes a time that you need to cut costs. There is no way around it and no one really likes to cut costs, especially if they haven’t ever done it before. The first thing to do when you realise that your business or department is sinking financially is to figure out how much of the costs that you should be cutting down in order get the business afloat again. 10% of cost cutting is somewhat fine, whereas at 20% cost cutting, you would feel it. 30% and above means that you will definitely be running a very tight ship for a considerable amount of time. You simply cannot cut costs where it hurts your employees the most, which is their salary. Read this article to find out just how you can cut costs in a business without major changes.
Go through the overhead costs
In a business that is sinking, the reason is most likely included in overhead costs. Overhead costs include accounting costs, advertising, insurance, telephone bills and many others. At first sign of distress, you should be looking to reduce overhead costs. You may need to sit through a few years’ worth of records, but you will at least get to the root of the problem. Make statistical comparisons when you have details of all concerned departments over the past few years. The graphical representation and analysis will give you a clear picture of your next move.
Reduce operational costs
Operational costs are those costs that you incur in order to run your operation. These may be neglected as pass through costs or may not be noticed at all. The best example that can be quoted is the stationary that we use in an office. Most of us order stationary every month without even glancing at our current stock. Such business costs need to be reduced in case of a cost cutting scenario. Stationary is not the only costs that may seem essential but is actually a big cost. There are many others. Look at each operational cost and set goals to decrease it by the required percentage. Work together with your employees so that they too feel the need to stick to your cost cutting goals.
Hold back on fringe benefits
Most companies give their employees certain fringe benefits such as country club memberships, company sponsored holidays, meal vouchers and parties. These are fine as long as the business is flourishing. In a situation of scarcity, such benefits are considered a luxury. We are not suggesting that you cut them off altogether. Simply hold back on them. Give your employees one company sponsored vacation instead of three per year. Organise parties involving several departments instead of organising one for each department alone.
One of the most important things to do when it comes to reducing costs in a business is to re-evaluate its processes. This is a step that most business owners and department heads forget to do. You are not doing as great as expected because of a flaw in your processes. Take some time, therefore, to carefully reevaluate your processes in order to identify and address the issue.