Here are ten ways to make sure that your cost-saving mind-set remains sharp.
1. Get the basics right
Trying to save costs in a business without a day-to-day awareness of the financial position of your company is like driving in the dark without headlights on. Your first step towards saving money in your business is to make sure that your administration system regularly produces an accurate set of management accounts of your business. If you don’t look at an updated cash flow forecast, budgets and financial statements at least once a month, start now. Get a good accountant or business adviser to go through your accounts with you. It is the most effective cost-saving money you can spend. The awareness created by this regular exercise puts your brain almost automatically in savings mode.
2. Consolidate your expenses into discounted packages
As your business grows, phones, IT devices and internet connections usually increase. Bank accounts and transactions sprawl, fuel purchases are made far and wide as the reach of your products and services increases, and supplies are often bought on an ad hoc, urgent basis from the nearest outlet. All of this means that you regularly have to look at consolidating these expenses into bundled accounts. Small businesses don’t have much clout when it comes to negotiating bulk discounts, but money can be saved by bundling your expenses into single accounts, even if it is through a loyalty programme at a single garage for your fuel purchases. Phone and data services can be converged, and the cost of phone calls to your staff members can be eliminated if everyone is on the same network.
3. Rethink and renegotiate with suppliers
What passes as “loyalty” to a single supplier, with all sorts of supposed advantages, is often actually just due to the fact that the busy business owner is not getting around to finding better alternatives. Try doing a thorough market scan at least once a year, and use the information to renegotiate terms with your suppliers.
4. Look for and apply new tech
Almost every day new technology emerges that can make business processes cheaper. Adopting such new technology early comes with some risks, but on the other hand not adapting it when all of your competitors have already done so is just foolhardy. Cheap data calls are now possible in most urban settings, telematics gives you unprecedented control over the movement of your vehicles, route optimisation software shaves thousands of kilometres off delivery rounds, office paper printing is giving way to scanning and electronic documents, more energy efficient machines are constantly being produced, and most online software applications are free nowadays.
5. Make saving costs an explicit part of your staff’s job
It costs nothing to state explicitly in your employment contracts that it is each employee’s responsibility to look out for ways of saving costs and doing things quicker and better. Encourage your staff to implement this approach by praising and rewarding cost-saving ideas.
6. Is buying really cheaper than hiring?
South African business owners tend to have an emotional attachment to owning equipment. In Europe, most business vehicles are leased because it is cheaper over the life of the machine. In South Africa, as a rule, vehicles tend to be bought rather than hired out of habit and a sense of ownership. Before you buy any piece of equipment, do a careful, holistic calculation to make sure that a leasing option might not be cheaper.
7. Is doing it yourself really cheaper than outsourcing?
On the surface, it often seems cheaper to design your website or your flyer yourself, to write your own marketing material, or to add a section onto your workshop to do an upstream process yourself. But is really? Always compare the costs of bringing production processes in-house to the cost of outsourcing it, and try to be realistic about the hidden costs of doing it yourself such as the hours you will be spending, not only to set it up, but to manage it on an ongoing basis, the training of in-house staff and the risks of beginner mistakes.
8. Buy second-hand
Is there anyone in the world who cannot be seduced by the shine of new equipment? Probably not. Make very sure that you make cold, realistic calculations when you compare buying new equipment with the cost of buying second hand. Be mindful that it is easy to pull any number of false arguments out of a hat when you are trying to justify to yourself a shiny new purchase.
9. Hire for enthusiasm, not for skills
Large corporate businesses can afford experienced and highly trained staff; owner-managed businesses not so much. One way around it is to look for the most enthusiastic untrained candidates and to train them on the job. Also consider taking on interns who can learn while they do odd jobs around your business. They can often turn into valuable employees.
10. Don’t cut to the bone
Being obsessive about cost cutting in your business can do damage. Essential processes can be hurt if you don’t spend enough on them. At a certain point staff members can start feeling too inhibited to do their job effectively. And sometimes spending on a seemingly luxurious item such as an upgrade of the staff rest room can increase staff well-being and productivity. The tension between spending and saving is a fine balance that requires work and attention to achieve in every business.