Money Matters, Simplified.
Reducing Business' Expenses: Points to Ponder
Small business owners are constantly looking for ways to reduce cost for increased efficiency. Here are a few points to ponder.
Sat, 12/19/2009 - 09:58 by Ishita Sood
To check unnecessary expenditure, write it down on a piece of paper and see how much is allocated and how much is used. This will help to know where the business is spending in excess. Cost reduction increases efficiency and profits, especially in troubled financial times like the present. However, some businesses compromise on quality of products and services to achieve this. This is not the right approach. One must understand how and when to cut costs.
Type Of Expenses
1. Employee’s Pay
Employees’ salaries, wages, and other HR costs are among the biggest expenses for most businesses.
2. Retirement Expenses
Every business must make retirement plans for its employees so that the employees’ future is secure even when he/she is not working. Retirement planning includes various benefits like gratuity, provident funds, and tax plans.
3. Rent, Interest, and Taxes
Rent is the amount one has to pay for the use of property, whereas interest is the amount paid for the loan taken. Taxes are compulsory payments out of profits which are given to the government.
4. Insurance
Insurance is an ordinary yet a necessary expense. Business must insure for security of trade and profession. There are various types of insurance; general, life, fire, accident etc.
To reduce cost, one must first analyze the following and act accordingly.
1. Check Where the Money Goes
One must know where all the money in the business is going. To check unnecessary expenditure, write the different expenses down on a piece of paper and see how much is allocated to each and how much funds are actually being used. This will help to know where the business is spending in excess.
2.Cut Unnecessary Expenditure
Once it is known where the unnecessary spending is occurring, one must take measures to cut such costs.
Purchasing expensive coffee, snacks, tea etc. will only increase bills. Consider making coffee in the office premises, and hire a cook or helper to serve clients.
Another expenditure that can easily be cut is electricity. Always switch off fans, heaters, and geysers while leaving the office. This will save electricity, as lighting is expensive. Turn off computers and laptops when not in use.
Saving water is another vital area for every business. Also analyze if your business can do away with some of the phones, printers, or other office equipments.
3. Manage Credit
To reduce costs in business, one must check business’ credit needs. How much credit is needed and is actually taken are two different things. Taking credit to increase working capital is not the right approach.
A poor credit score only increases interest rates and insurance costs. It also gives a negative impression to the lenders. One must pay off bills on time and avoid taking heavy loans. Use of credit and debit cards must be avoided as much as possible.
4. Check Obsolete Procedures
If a business has been in operation for many years, chances are that the technology and procedures used may be obsolete. It is important to re-evaluate the procedures to cut back on wastages and duplications. The objective is to trim unnecessary steps that are not needed in the business anymore.
5. Adapt to New Technology
Business is a big risk; one must learn to adapt to newer methods and technologies to sustain in the market. Showing reluctance to new ideas because of initial costs will repel buyers.
New technology helps in increasing efficiency and saving costs. It is important to be well informed on the latest in the industry and make an analysis accordingly. The use of Internet is suggested to know about the latest advancements in the market.
