Business Cost Reduction: The Key to Improved Profitability
Businesses are always established to provide a service or goods in return for profit. When you sell your goods or services to the targeted market, customers pay you. The amount you receive is referred to as sales or revenue. There are costs you incur in order to produce what you sell. What remains after deducting costs from revenue is your profit. In most cases, you will find that costs have a tendency of surpassing your sales, thus incurring losses. You need to create measures to safeguard the money that your business generates. This is what business cost reduction is all about.
By reducing costs, your business is able to have a strong cash flow, providing you work extra hard to make profits. It is prudent that you keep as much of that cash as possible. Otherwise, your business might be on the path to failure.
Nevertheless, by following the tips outlined below, you do not have to contemplate about failing in business.
- Manage utility costs: Electricity, telephone and water are some utilities that can be very costly. You cannot operate a business without them. Identify ways of keeping your bills down. Some of these measures include switching off power when a room is not in use and ensuring all employees switch off their computers soon after the end of a work day. Evaluate how you can cap cell phone usage. For example, you may require sales staff to top up their cell phone units from their own pockets once they exhaust a given limit.
- Negotiate with suppliers: If your business specializes on buying of goods for resale, there is a way to save costs. Negotiate with your suppliers to give you price and quantity discounts. On the other hand, you can discuss ways of extending your credit period.
- Put systems in place: Items such as stationery are among the most wasted. Put in place a system that ensures everything is used for the right purpose. For instance, you can determine the utility requirements of every department. Use this to budget and order for future supplies. Advocate for recycling of stationery. For instance, photocopied or printed papers can be re-used for internal communication. The unprinted side could serve a useful purpose of printing internal memos and other notices.
Cash control systems also help reduce pilferage of petty cash. Money spent must be supported by a receipt or other evidence. Check out our cost reduction services to learn more.