Cost-cutting to Drive Real Results in your Business

Reducing your operating expenses by just five per cent can grow your bottom line by 20 per cent or more. Trust me on this, or check with your accountant. If your accountant can’t explain this to you, get a new one.

Here are 10 ways to reduce operating expenses. While they won’t all apply to your business, many of them will.

Remember to review your operating expenses at least once a year. Keeping them down is an ongoing battle, not a one-time event.

Make a List
Write down your 20 biggest expense items, as they have the most potential for significant savings. Ask suppliers what opportunities or special terms you’re missing out on, for whatever reason, and how you can work with them more effectively. Outside industry experts can also spot major opportunities to streamline operations quickly and affordably.

Renegotiate Contracts
Review every contract from maintenance and groundskeeping to insurance, phone and office equipment. Ask those suppliers how you can save money so that you can stay with them and grow together. Be nice, firm and fair, but switch suppliers if necessary.

Check Member Benefits
Contact your industry or trade association to see what special rates they’ve negotiated on items like insurance, car rental, hotel rates and employee benefits. If your association has done nothing to negotiate savings for its members, suggest they do so.

Evaluate Employees
Where or when are you overstaffed? How can you adjust staffing without hurting your service levels? Are you keeping non-performers who are costing you money, time and, perhaps, customers? What is it costing you not to deal with non-performance?

Assess Office Use
Do you need all that physical space? Or is it going to waste?

If staff are in the office for only a small part of their normal workweek, assigned seating doesn’t make a lot of sense. Open seating, where desks and computers are available on a first come, first served basis, may be more practical and save on space and IT costs. If excess space can be sold or rented out, or if you can move to a significantly smaller space, you can reduce occupancy costs.

Embrace ‘Lean’ Thinking
Many smart manufacturers and service providers are adopting ‘lean’ principles to create an efficiency advantage. The five principles of lean encompass identifying value, mapping the value stream, creating flow, establishing a pull system, and striving for continuous improvement. Lean thinking provides a disciplined approach to examining each step in a production and/or distribution process to determine areas of improvement and eliminate non-value activities and waste.

Ensure Invoices get Paid
Not managing cash flow is one of the biggest reasons for failure in small and medium-sized businesses. If you sell to consumers who pay by credit card, it’s not a problem. But if you extend credit, don’t let your accounts receivable get out of hand. Often, small customers fail to pay on time because they can’t and big customers don’t pay because, quite frankly, they’re jerks. They both want your absolutely lowest price and then keep you waiting months for payment. Don’t be so desperate that you have to do business with unprofitable or toxic customers.

Sometimes, however, late payments are your own fault — you fail to invoice promptly or follow-up diligently. Receivables don’t get better with age and writing off bad debts can destroy your bottom line.

Identify Areas of Waste
Pennies add up. Analyze your production and/or distribution process so you can determine what items fall into the non-value-adding category and adjust.

Adopt Technology
Sure, technology costs money, but it reduces operating expenses by automating many tasks and increasing productivity. To more effectively incorporate technology into each part of your business, you need a specific, expert technology advisor. This is very different from a ‘break/fix’ technology repair person; it’s an expert in needs and possibilities analysis, software selection and creation, installation and integration, and maintenance and updates.

Encourage Input from your Team
Your employees at all levels have lots of ideas about how you can operate more efficiently, but they are reluctant to share if not asked. Team meetings provide an excellent opportunity to obtain valuable input. Or host a two-hour ‘idea fest’ every quarter, where everyone must come up with at least one idea to operate more effectively. Give staff at least a week’s notice so they can do their homework. Then, let them vote on whose idea is best and give the winner $200 or a restaurant gift certificate. This encourages input going forward.

Donald Cooper has been both a world-class manufacturer and an award-winning retailer. Now a Toronto-based business speaker and management coach, he helps business owners and managers rethink, refocus and re-energize their business to create compelling customer value, clarity of purpose and long-term profitability. Donald can be reached at [email protected].