Running a business process is a game of resource management. A successful business process makes more money than it spends, but this oversimplified definition doesn’t always hold up. You see, cutting costs is not always easy, and it’s a strategy that can sometimes backfire.
- How many brands have you given up on because their quality of service/products diminished over time?
- What if we told you that this happened due to their effort to cut costs and maximize their profits?
- So, if this is not a good idea, how do you safely cut costs?
We’ll try to give answers to all of these questions and more.
Cost Reduction Must Be Planned
Just trying to save money can cause more problems than it’s worth. Why? Well, because trying to save money on people’s bonuses may mean that they’ll either try less or abandon you when the first opportunity arises. This means that you would lose a competent team member and have to start a new hiring process (which can be incredibly costly).
If you decide to cut materials or switch to lower-quality materials to save money, you will soon start losing clients and reputation because of the diminished quality of the product. In the end, you’ll end up losing a lot more than you’ve saved. The only difference lies in the fact that savings are instant, while the losses might take a while to materialize. Moreover, seeing as how there’s a time discrepancy between a cause and the result, some of the less aware entrepreneurs don’t even connect the cause and the result.
So, cost reduction needs to be planned. Ideally, it should be discussed with your accountant and the rest of your team. The execution is just as important.
The next thing you need to understand is why this is so important. You see, the problem is that cutting costs never feels pleasant. Even if you’re doing well, the fact that you’re forcing yourself to cut costs means that there’s something that’s done sub-optimally. The very fact that you’re forced to be resourceful indicates that you have less maneuvering space than you’ve hoped for.
This is why it’s important that you rationalize the need for savings. First of all, you need to explain how this will save you a fortune. Second, you need to understand that, while restricting you in a way, it gives you more options because it creates a surplus of resources that you can redirect where you see fit.
Consider What to Outsource
Outsourcing is, beyond doubt, one of the best ways to cut costs. You see, instead of starting your department, you’re just paying for the services. Sure, in the long run, the costs can be comparable, but to get started, you would have to:
- Hire experts (whose services aren’t cheap)
- Invest in high-end equipment (both hardware and software)
- Take some time for your team to increase efficiency
With outsourcing, you get the services of a fully efficient and cohesive team right away. Since time is money, this gives you one more way in which you’re creating massive savings.
Still, outsourcing is also about control, which is why you should keep the team handling core tasks in-house and outsource some other functions. For instance, you can outsource your HR, IT, and customer services while keeping the rest in-house.
One of the best ways to save time is to automate all the processes that you can. This way, tasks that can be automated are handled in a fraction of a second with minimal human input. This frees up a massive part of your team that you can assign to different tasks. As a result, you get to do more with a smaller team.
This is especially important in accounting tasks, like with account payable automation, so that you can reduce the likelihood of a human error during input. This also ensures that all your accounts are up to date and that you have the results on demand.
Always Try to Negotiate
There are zero reasons why you should just outright agree to an offered price. I mean, what’s the worst possible outcome of your trying to negotiate? No, you’re not in the market where they’ll ask for a higher price as a result of you annoying them. Also, unless you’re brash and disrespectful, there’s no way that the other party will get offended by your attempt to lower the price.
If you do make it, however, you’ll get the same service or number of materials for a lower price. It’s like making the money out of thin air, seeing as how you get to cut costs and avoid all the negative effects that we’ve discussed in the first sections of the article.
For all of this to work, however, you need to learn how to properly negotiate. Having a strategy is vital to your success, and picking up some research materials on the subject matter might be a great plan.
Check Your Costs of Representation
The biggest expenses sometimes come from where you least expect them. You see, while it’s important that you radiate affluence during your business travels, sometimes, your reckless spending on a business trip can be a problem for your budget.
While arriving at a business meeting in a cab may leave a bad impression, the hotel room that you stay in doesn’t have to be luxurious (unless you intend to entertain potential partners there). Also, bear in mind that you don’t have to buy the most expensive meal on the menu to show that you’re doing well. Cutting some of these minor costs can sometimes be surprisingly impactful. Just remember, developing your soft skills might provide you with a better method to impress them.
Having a budgeting app on your travels is a great way to keep track of your spending. This way, you’ll be alerted if anything goes wrong.
Lastly, it’s incredibly important that you develop a healthy mindset when it comes to cutting costs. There are some areas in which saving a single cent means losing a whole dollar. Then, there are areas in which it’s better to switch to a cheaper model than to start skimping on the already existing processes. The key thing is that you find a way to run as efficiently with fewer resources. This way, you’ll get ahead of your competitors and make a scalable fiscal model for your enterprise.