How to Manage Your Business's Expenses and Reduce Your Costs

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How to Manage Your Business's Expenses and Reduce Your Costs

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From starting itself, most of the business owners know it and agonize over each penny spent. However, as your business grows, they will find themselves not able to watch closely over each dollar spent. 

Here are some tips that will help the company to control the costs when you scale.

1.      Consolidate all your purchases as well as negotiate the right pricing. An exec saved their company around $100,000 for a year on a $1 million every year mail budget just by consolidating the print & mailing the house services to a company. Remember that reviewing your vendors is particularly important for the companies that have gone through the recent burst of growth. We see some companies paying costs based on the purchase volumes they exceed. You can renegotiate frequently as we have seen one tip that will save business coaching clients some dollars. You can also check over the community for the local buying organizations that gather all local businesses in an area and use the collective buying power for all members.

2.      Get the vendors to compete with your business. Ensure that they know about one another, without even rubbing the faces on it. It is very amazing how much better the pricing will be when the vendors feel the hot breath of the competition on their necks. Even though you plan to stay with the current vendor, the fact that you are aware of and know that you are getting outside the bids can keep the pencils sharp as well as help to ensure that you get the better pricing. For instance, go back to the current shipping vendor & say, " my boss has told me to get the competitive costing on the account for the coming year. And I told him it is my preference of staying with you, however, he has made it clear that we want to reduce the costs. Thus you can please look at the purchase history over past some year and do best to give me best rates for a coming year. In this way, you can do all you can in helping you to keep an account.

3.      Review all your vendors regularly. By building on prior tips, make the annual or the semi-annual review of your key vendors the standard practice of your company. Ensure that you flag all renewing contracts and pop up for the review or rebidding 60 to 90 days before the renewal. Better still, cross out boilerplate language from the vendor's contract who calls for the automatic renewal as well as write in you have an option to renew, however not an obligation.

4.      You need to train the staff and ask for discounts. The short negotiation on how the team will get the discounts from all your vendors, and consistent recognition for the team members who do it, pays off very handsomely in the increased cash flow. Such practice alone can reduce the variable expenses by over 5 to 10 percent. For example, John, operations manager of our business coaching client has saved the company $140,000 just by renegotiating some key contracts in the first 12 months after attending the negotiations training.

5.      When possible, make your expenses variable or fixed. You may change the variable expense whenever you want to, by dialing it up/down that will suit the cash flow situation & business needs. Such flexibility is very valuable. For instance, can you use performance compensation and guaranteed payments? Will you rent, and not purchase? Will you lock in the option to review, then contractual obligation?

6.      Cultivate fiscal discipline as a core company value. The symbolic choices that you make and allow as a business owner can find the way in the culture of the company. Sure, you may buy this fancy car and travel to first-class on the company's dime, however, just know your team is watching out for your example.

It’s estimated that many companies are wasting over 30% of the expenditures on items that don’t have any kind of impact on the customers. However, there is no such thing as fast save, in the good business. Although knee-jerk and cost-cutting might make figures look better in a short term, it will have a negative medium and long-term impact on the business.

Understand cost-revenue structure

It is a very important item in effective cost management. Lots of companies just do not hold any accurate information on what the costs actually are. When looking to manage the costs, the company should first identify the sources of revenue. Or how much will be coming from the sales of products or services and which are highest spending clients? After that, the company has to work out what specific costs will be implicated in producing the revenue stream. Lastly, PR company's overheads & costs not straight linked to the revenue generation should get identified. This is something you need to keep in mind to avoid any kind of issues.

Reduce the interdepartmental conflicts

As the first step, you can draw up the basic flow chart on the company's workflow. This can start and help you understand how every department is been affected by others. For instance, how does warehousing affect sales? For any organization, the way a department operates is been influenced by the other parts of a company. Thus, to reduce complexity, the business owner should be questioning why the work is done, or how it is done very efficiently. When you have drawn your flow chart, probably you will start to see that there are many extra or unnecessary steps that are involved in the company's operations.

Skill all your employees & involve them

You need to educate the employees in decision-making, problem-solving, and team-building so that they can control their costs. Most of the people would like to do a good job as well as to help the company that they work to be very successful. When the company invests in the people by training or skilling them, especially in the recession, it can reap rewards of the workforce that work together for good of a company. In the same way, suppose you involve all your employees in cost management procedure, you can get the best from them. Suppose you’re actively on the lookout for suggestions from the employees you will, without doubt, find cost-effective and better ways to do such things.

Back to the business plan

Each company requires to have a long-term strategy. Cost management must be part of the strategy as well as get influenced by strategy. The cost decisions should get measured against the company's strategy, instead of the current and short-term situation. The company must not at all buy the excessive amount of the inventory because the manufacturer has actually lowered the price in order to totally get rid of this. A company must be buying the amount it requires to satisfy the customers.

Simple Savings

I may reiterate that there actually is not anything as the fast save while looking to manage the costs, however, there are a few simple changes, which you may make right away. There are some small costs that are reduced with very little risk in affecting the quality of the service.

·         Put stops to blatant any waste, for example, heating the premises when they’re unoccupied. Lights are on when not required.

·         Checkout supplier invoices very carefully for overcharging example missing discounts. Totally get rid of the obvious overcapacity example paying the rental on the spare telephone lines, or unnecessary subscriptions, and more.

·         Source cheaper suppliers that still will offer you the same level of service or products.

·         Use only the first class post while it is necessary and tell staff to do the same.

Benchmark yourself

As a part of the cost management overhaul, you need to benchmark yourself against many similar companies. What’s the industry average spend in different areas? How do the costs compare? Review what you’re doing & how you’re doing this.

Talk to the customers

You can take a little time and talk to the customers or ask them in case they think that you’re providing them with anything they don’t need. For instance, maybe the costly same-day delivery you offer isn’t required or your packaging is much better than essential. The customers are the best people who will tell you which parts of the service are very important to them or which are the surplus for their requirements.

Review all your finances.

You need to cut back on the working capital through in-time purchasing, and better credit control, or agreeing longer terms with the suppliers. Consider the low-interest loans instead of overdrafts – or knock out any unnecessary loans and overdrafts on the head. You can apply for grants and subsidized loans you are entitled to.  You can get the most out of the premises just by thinking about subletting extra space. Maintaining tight control over fixed & variable expenses is the essential part of maximizing the cash flow and the profits of your business.

If you want to get high-quality articles then please do not hesitate to contact me at richard.nata@yahoo.co.id.

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