Competition in business is more intense than ever before, with tough economic conditions in most sectors and rival firms battling harder than ever for market share. Uncertainty following last year’s Brexit vote and the US Presidential Election has added to this mix. There are also new threats from online providers, new business models and global competitors. As a result, increasing profit levels is quite a challenge. If you can’t increase your prices or your sales volumes, consider how to reduce costs in order to increase your profits.
Here are out top tips for increasing your profits by reducing costs:
1. Nurture a culture of cost saving
Everyone can and should take some level of responsibility for the costs related to their work. One way is to involve more people in the budgeting process. All employees could be partially accountable for the costs that affect them, and which they affect.
2. Negotiate with your suppliers
Renegotiating contracts with suppliers may bring surprising results. Every service provider will be keen to retain your business. As such, they may be open to renegotiating contracts. If you are in a position to negotiate a volume discount in return for another 6 to 12 months of loyalty, you may be able to benefit from some substantial savings.
3. Decrease waste
Depending on your business, this could be wasted materials, time, effort, money or team members. Everyone in your business should learn to identify and take steps to reduce or eliminate waste. Decrease waste further by ‘going green’ to reduce utility bills by becoming more energy efficient.
4. Decrease stock levels
Stock is a dead cost and absorbs cash. Decreasing stock levels may require the streamlining of some of your business systems but it may produce some significant cost savings. If you carry excess stock / inventory you should be able to free up some cash flow in the business by reducing stock levels.
Overtime is expensive, but a little preplanning of your work schedules will go a long way to helping reduce overtime costs. If you have more demand than you can handle, it might be cheaper to outsource some of the extra capacity.
6. Reduce debtor’s days
Cash flow tied up on the debtor’s ledger is effectively costing the business money. Reducing the average time it takes to collect outstanding debts from say, 60 to 45 days, can increase cash flow, reducing the need for expensive overdrafts and credit.
To explore specific ways of reducing costs within your own business, please contact Geoff Cole, Managing Partner, on email@example.com, or call him on 01934 620011.