Statistically, only 50% of small businesses in the US survive past their first 5 years of operation. This means that your own small business has a 50/50 chance of failing before it has a chance at success unless you have excellent cost reduction strategies in place to streamline and stabilize your cash flow.
Thankfully, you don’t have to sacrifice the culmination of your hard work and lose momentum because of avoidable business-related expenses. At the moment, entrepreneurs and rapidly growing small businesses are creating up to 90% of the world’s jobs. In addition, they’re fostering local economies by providing new opportunities and wealth in their immediate communities. It’s important to keep your business thriving to be part of this positive movement.
This article will explore effective cost reduction strategies for your business. Plus, it will explain why these strategies are important for your organization’s future.
What is a cost reduction strategy, and how can it be used to your advantage?
Cost reduction is a strategy whereby a small business reduces and minimizes its operational expenses to give itself the best possible financial success.
Unlike cost-cutting, in which a business resorts to reducing expenses as a last resort, cost reduction can be performed to enhance productivity and boost profit margins. Not out of necessity but out of intelligent strategy implementation.
There are a few golden rules to remember as a small business performing cost reduction:
- Cost reduction should involve the reduction of costs. It’s not the complete elimination of necessary expenses that support your business’s growth
- These reductions should not negatively impact your operations, processes, or the quality of your products and services
- Cost reductions should be performed in a way that allows for the modification of product and service features without affecting the quality of those offerings.
- Cost reduction should never be performed as an immediate, short-term process. It should rather be instated as a long-term, sustainable solution that enables smooth and stable cash flow.
5 Cost Reduction Strategies
1. Adjust Your Sourcing Strategies
While time is of the essence in cost-cutting procedures, this is not the case in cost reduction processes. Adjusting your product and material sourcing strategies could enable you to switch to more cost-effective and local alternatives to the products your business currently offers. It could also enable you to source environmentally-friendly alternatives to the products your customers know and love, especially as the demand for greener products grows.
Sourcing modifications can reduce long-term operational costs and enable you to diversify your portfolio of suppliers. This will enable you to switch between suppliers to enjoy the best possible cost advantages. Adjusting sourcing strategies can be particularly beneficial during times of economic recession and hardship. During this time, it becomes essential to offer customers high-quality goods at the most competitive prices possible.
You could consider contacting your suppliers and retailers directly and requesting discounts as a small business owner. Many suppliers will be happy to oblige, especially if you are a regular customer that provides valuable business for them. It’s beneficial to keep an eye out for competitive deals and ask your suppliers about specials and discounts. Being willing to take a chance on new suppliers is also important when it could benefit your company’s financial standing.
2. Reduce Your Office Expenses and Resource Usage
Maintaining physical office premises is one of the largest expenses that any small business will face. Office rentals, equipment, stationery, and utility costs can all add up quickly. However, many of these expenses are actually relatively simple to reduce or eliminate. The carbon footprints of purchasing, using, and repairing these items can accumulate rapidly. This is why minimizing their use is one of the best ways to ‘green’ your office environment.
One way to reduce costs and carbon footprints alike is to establish a remote office environment. If most of your employees can work remotely, there is no need to pay costly rentals each month for physical workspace. Business meetings can be held at co-working spaces, rented venues, or public conference facilities or hosted via digital video conferencing platforms like Slack, Zoom, and Skype.
If you still want to keep your small business looking professional for clients, there are plenty of affordable ways to do so without needing physical office space. For example, most virtual office software offers professional printing solutions at a flat rate. In addition, business VoIP phones can be personalized with custom voice messages, and most business email services allow you to personalize your team’s email addresses for uniformity as well.
Yet another factor to consider when assessing the sustainability and expense ratios of your small business is the advantages of solar energy. The impact of solar energy in the business world is growing by the day. As a result, more and more businesses are discovering the financial benefits of switching to green energy systems.
The implementation of solar panels may carry high upfront costs initially. But these costs will be mitigated by your company’s ability to produce and run on clean energy in the future. Over time, you may even be able to sell excess power back to the grid to diversify your income streams. Plus, you could claim a solar investment tax credit for your environmentally friendly policies.
3. Choose Only The Essential Paid Software
Software is a high cost for all modern businesses. However, small businesses may not have the budget needed to keep up with ever-changing software developments with their associated costs. Therefore, choosing paid software that matters the most for your business operations is ideal for keeping only the necessary expenses.
Thankfully, there are dozens of alternatives to choose from. Software like Hourly can do multiple things for your business, like time-tracking, payroll, and workers’ compensation. All-in-one software can help businesses reduce time jumping from one platform to another. It also reduces the need for paper records, which further lowers buying supplies and printing these records.
4. Take Your Marketing Efforts Online
Digital marketing is arguably the most effective way to market your business in the modern age. However, if you don’t have an established online and social media presence, you could be missing out on some of the best, most cost-effective advertising tools available. In addition, promoting your business online allows you to reach much wider target markets while spending less money in the process.
Modern inbound marketing methods, like running a business blog, reaching out to new followers and leads on social media, and optimizing your email marketing strategies can win you huge amounts of targeted traffic and brand recognition. All without the expenses associated with outdated outbound marketing.
5. Hire More Interns and Employees in Need of Training
Highly experienced, seasoned professionals tend to demand higher salaries and more benefits than interns and inexperienced workers. Being willing to hire interns and young learning professionals also gives your business a chance to strengthen its training and development procedures. At the same time, you get to train staff that knows exactly how best to facilitate your organization’s growth and progress.
You may even be able to build a reputation for your business as being one that’s willing to hire inexperienced staff. This will attract plenty of eager college graduates looking for industry exposure and a chance to learn the ropes. They get the work and exposure they’re looking for, and you get a steady stream of dedicated professionals ready to be molded to your needs. Everyone wins!
Automation technologies have the power to eliminate tedious manual tasks, streamline your operations, save costs, and even render your business’s procedures more environmentally friendly.
Automation is becoming the norm for thousands of small businesses across the globe as they look for ways to simplify their operations and maximize their cost savings at the same time. There has never been a better time to invest in automation technologies, especially if your ultimate goal is sustainable future growth and expansion.
Paperless Accounting and HR
Your accounting, payroll, and HR departments generate vast amounts of data. If you’re still using paper filing methods, they generate huge sums of paperwork too.
Going paperless makes this data considerably more valuable. When it’s stored on the cloud, it can be used to generate real-time insights into your business’s financial standing and human resources processes.
The data obtained by these reporting systems can then be used to assist managers in the making better, more meaningful, and more informed decisions about their finances. In addition, easy-to-use payroll platforms can be used to reduce staff turnover by ensuring that employees are paid correctly and on time every time.
Furthermore, paperless systems use secure cloud-based storage, which keeps your business’s financial data safe from prying eyes, cybercriminal attacks, and even natural disasters like fires and floods. They also save on paper and printing costs, which have important ramifications for your carbon footprint.
Paperless Time Cards
Automated systems allow you to create customized time cards for each of your team members using your smartphone. In addition, your employees can fill out their time cards from their mobile devices. Thus, saving on paper usage allows you to keep accurate records of their work attendance, hours, and performances.
Automated Project Management
Automated project management software reduces your business’s need for time-consuming manual management processes. Additionally, it creates robust workflows that streamline approvals and allow you to manage and track progress in real-time. As a result, these systems can free your team to tackle pressing business issues and tasks quickly and creatively without being burdened by complicated manual labor or paperwork requirements.
Subscription-based workflow software offers a wide range of features. They all simplify your business’s project fulfillment, from instant digital communication tools to project management dashboards and third-party app integrations.
Making a move To Sustainability
As a sustainable business, your cost reduction strategy should be aligned with the latest technologies in your sector. For example, it should include time-saving automation tools, solar panels for business, paperless systems, and workflow and project management systems.
This kind of technology will enable you to lower your business’s carbon footprint, enhance your efficiency, and reduce non-essential costs while maintaining a high degree of functionality.