The facts are in–inflation is growing much faster than wages. Simply, it costs more to do business, and most analysts agree there is no quick fix. The Australian election campaign has been heavily focused on inflation and the cost of living, and both parties agree something needs to be done – Anthony Albanese has suggested to raise the minimum wage – which impacts small businesses.
What is an owner to do?
Many small businesses leaders are reluctant to raise prices or are fearful of increasing them enough to maintain profit margins. While it is prudent to always be seeking ways to increase revenues, and whether you decide to raise prices or not, cost reductions can have an equal, and perhaps larger effect on your bottom line.
Unfortunately, some cost cutting measures can actually harm your business, so here are 15 ways you can reduce expenses without causing collateral damage.
Some methods might seem more draconian than others, so evaluate each according to your specific situation and goals.
They are listed in no particular order of cost savings or importance.
Review your insurance policies
You want to maintain good coverage, but policies differ greatly. Shop around, consider increasing deductibles, and eliminate unneeded coverage.
While employees are critical for certain responsibilities, the cost burden associated with recruiting, hiring, on-boarding, training, and letting full time employees go can be staggering. For many projects and short-term responsibilities, the use of interim freelancers can represent significant savings. Most estimates indicate that the use of an independent contractor in place of an employee can represent savings of 30%. If you do decide to pursue this route, make sure you classify employees and contractors correctly to ensure you comply with labour laws.
Meet customers, prospects, and vendors virtually
While in-person meetings surely have benefits, most business professionals now expect their associates to use platforms like Zoom for interactions. In addition to reducing travel and meal expenses, this method offers the additional advantage of consuming much less time, providing bonus hours you can use to remotely visit with even more stakeholders and to devote to other aspects of growing your business.
Consider ways to use AI, robotics, and other technologies in place of human beings to perform redundant or programmable activities. This approach may carry some near-term expense but can often provide returns quickly and pay off big over the long haul.
Eliminate paperwork and paper
a. Invoicing electronically eliminates the need for printing, stamping, and snail mail costs. Invoices are also received quicker, which could lead to receiving quicker payments.
b. Save documents and files to the cloud, reducing paper, copying, and printing costs.
Make sure your house is in order
Understand your federal, state, and local rules and regulations. Stay compliant. Also, keep your vital documents and contracts updated and in order. If necessary, invest in a good labour attorney and/or HR professional. The fees will likely save you serious money in long run versus the potential fines, penalties, and lawsuits resulting from noncompliance or similar violations.
Consider no cost / low-cost employee benefits
The labour market is brutally tight, so you must have a compelling strategy, value proposition, and culture to attract and retain great talent. Benefits can be important here, but many do not need to cost big bucks. Benefits like flexible work (remote; flex time), creative, and payroll deduction programs so employees can buy their own savings bonds and/or other qualified, self-directed purchases, and more can all be considered.
Implement low-cost marketing strategies
You do not have Apple’s marketing budget, so improve your strategies and execution effectiveness in areas such as referrals, networking, an effective social media program, and more. Think outside the box. Get creative! After all, this IS marketing.
a) Change your lighting: You can save up to 40% on energy costs by selecting the appropriate lighting. Use LEDs, timers, dimmers, etc…
b) Shut down unused equipment. Many electronic items include automatic shutoffs and other energy-saving features, but you can save more by asking employees to turn equipment off when it is not in use—especially holidays, weekends, and overnight.
c) Re-program your Thermostat: You can also access significant savings by simply reducing the temperature a few degrees during selected times.
Consider a better banking solution
While just about every bank claims to be committed to helping small businesses, only a small percentage will back those claims. So choose carefully. Make sure you have a relationship with an individual at the bank that will take the time to understand your needs, and your situation. One who will communicate with you, understand the big picture, shoot you straight, and support you. In turbulent times like these, you may need personal support and will want a good banker in your corner.
Evaluate your phone system
Does your business still really need a landline, especially if many of your employees are working remotely? Several companies now offer smartphone business plans. Check them out.
Negotiate prices for goods and services you buy
If you don’t ask, you’ll never know. Consider prices, rates, discounts, terms, and more.
Invest in employee efficiency and effectiveness
The more efficient your employees become, the more work gets done. Productivity = Profit. Your people are your best asset. Invest in them and the returns can mount up. This translates into serious cost savings. Offer training and incentives—these are small investments compared with the potential returns you could reap.
Do you really need an office?
If your employees are working primarily from home, your need for office space may be reduced or eliminated. If you can’t negotiate your way out of your lease, you may be able to sub-lease your vacant space.
Consider capital equipment options
If you need a new machine or vehicle, a lease will likely cost less each month than a comparable payment on a purchase loan. Also, it may make sense to purchase used versus new. If you need equipment, re-furbished may meet your requirements. Pre-owned equipment can often be a good option, but if you decide to go this route, make sure to carefully check warranties.
Runaway inflation, high energy costs, supply chain issues, the tight labour market and more will cause many businesses to fold over the next year or two. However, this turbulent economic environment will also represent some huge opportunities for those savvy CEOs who stay informed, make prudent decisions, and invest wisely.
These tips are just a small sampling of the most popular techniques forward-thinking CEOs are using to weather our inflationary environment and position their companies for stability and continued success.
There are many more, which bring us to one final point. Don’t go it alone.
Collaborate with other successful business owner peers in a group like The Alternative Board. Doing so will keep you on the tip of the spear, help you make much more informed decisions with regard to how to invest your precious, limited time, money, and resources, and ultimately save you a fortune.