How your business can overcome the issues and challenges of rising costs

As the global economy continues to recover from the COVID-19 pandemic, rising interest rates and energy prices are becoming a growing concern for businesses. With interest rates and energy costs on the rise, many businesses are finding it increasingly challenging to maintain profitability and sustain growth.

At The Alternative Board, we have seen many businesses come to us in strife over increasing costs, and helped them overcome these issues and challenges by adopting the following steps. By understanding the potential impacts of rising interest rates and energy prices and developing proactive strategies to manage these risks, businesses can position themselves for long-term success and resilience.

“Cash is king, but only if you manage it like a prince.” – Harold E. Dickson

Operational Efficiency:

Adopt remote work policies: By allowing employees to work from home, businesses can save on office space, utilities, and other related expenses. Remote work can also increase productivity and improve work-life balance for employees, leading to higher job satisfaction and retention. In 2013, Dell started a “Connected Workplace” program to encourage remote work and reduce its real estate footprint. The program was so successful that by 2016, Dell had saved $12 million in real estate costs and reduced its office space by 78,000 square metres.

Implement cost-saving technologies: By leveraging technology to streamline operations and automate repetitive tasks, businesses can reduce labour costs and increase efficiency. For example, using cloud-based software can reduce the need for expensive on-premise servers and IT staff.

Offer flexible work arrangements: By offering flexible work arrangements such as part-time, job sharing, or compressed workweeks, businesses can reduce labour costs while still providing employees with meaningful work opportunities.

Implement lean manufacturing: Lean manufacturing is a methodology that focuses on eliminating waste and maximising efficiency in production processes. By adopting lean principles, businesses can reduce costs associated with excess inventory, overproduction, and inefficient workflows.

Optimise inventory management: By optimising inventory management practices, businesses can reduce carrying costs and minimise waste. For example, using just-in-time inventory systems can help businesses minimise inventory levels and reduce storage and handling costs.

Supplier & vendor management

Review and renegotiate contracts: Businesses can review their contracts with suppliers and vendors to see if there are any opportunities to renegotiate terms, such as reducing prices, adjusting payment terms, or consolidating orders to save on shipping costs.

Outsource non-core functions: Businesses can save money by outsourcing non-core functions such as accounting, IT, and human resources to third-party providers. Outsourcing can reduce labour costs and free up resources to focus on core business activities.

Negotiate with suppliers: Businesses can negotiate with suppliers to obtain better pricing, terms, and discounts. Building long-term relationships with reliable suppliers can also help businesses secure favourable terms and lower prices.

Cost management strategies

Reduce energy consumption: By taking steps to reduce energy consumption, such as turning off lights and equipment when not in use, using energy-efficient appliances and lighting, and properly maintaining HVAC systems, businesses can save on utility bills and reduce their carbon footprint.

Solar power can offer businesses a long-term strategy for cutting energy bills.

Cost savings: Solar power can significantly reduce a business’s energy bills, especially if it has high energy usage. This can result in substantial cost savings over time, which can help the business’s bottom line.

Environmental benefits: Solar power is a clean and renewable source of energy that can help reduce a business's carbon footprint and contribute to a healthier planet.

Competitive advantage: By investing in solar power, a small business can differentiate itself from competitors and demonstrate its commitment to sustainability and environmental responsibility, which can be attractive to customers who value those values.

Long-term investment: While the upfront cost of installing solar panels may be high, it is a long-term investment that can provide a return on investment over time. Additionally, with government incentives and rebates, the cost of installing solar panels can be reduced, making it a more attractive option for small businesses.

Energy independence: By generating its own power, a small business can become less reliant on the grid and avoid potential disruptions in the event of power outages or other emergencies.

Re-evaluate employee benefits: Businesses can re-evaluate their employee benefits packages to see if there are any areas where costs can be reduced without compromising employee well-being. For example, offering high-deductible health plans or adjusting retirement plan contributions can save on costs while still providing valuable benefits to employees.

Reduce travel expenses: By limiting business travel and using video conferencing or other online communication tools instead, businesses can save on transportation, lodging, and meal costs.

Use social media and online advertising: Social media and online advertising can be cost-effective ways for businesses to reach customers and promote their products or services. These platforms can help businesses target specific demographics and measure the effectiveness of their marketing campaigns.

Explore tax incentives and credits: Businesses can explore tax incentives and credits to reduce their tax liabilities. For example, businesses may be eligible for tax credits for hiring certain types of employees or investing in renewable energy. At The Alternative Board, we help businesses to access grants and incentives, and strategise on how to use this investment to maximise their impact.

In Australia, there are various tax incentives and credits that businesses can explore to
reduce their tax liabilities. Some of these incentives and credits are:

Research and Development (R&D) Tax Incentive: This incentive is designed to encourage businesses to conduct research and development activities in Australia. It provides eligible businesses with a tax offset of up to 43.5% of their R&D expenditure. To be eligible, businesses must have an annual turnover of less than $20 million and meet certain criteria.

Accelerated Depreciation: Businesses can claim accelerated depreciation on certain assets, such as machinery and equipment, which are used for income-producing purposes. This allows businesses to claim a larger tax deduction in the first year of the assets use, reducing their tax liabilities.

Small Business Income Tax Offset: This offset provides eligible small businesses with a tax offset of up to $1,000 on their income tax. To be eligible, businesses must have an annual turnover of less than $5 million.

Investment Tax Incentives: The Australian government offers various tax incentives for businesses that invest in certain industries or regions. For example, businesses that invest in the Northern Territory may be eligible for a range of tax incentives, including a payroll tax exemption and stamp duty concessions.

Renewable Energy Tax Incentives: The Australian government offers various tax incentives for businesses that invest in renewable energy. For example, businesses that install solar panels or wind turbines may be eligible for a range of tax incentives, including accelerated depreciation and tax credits.

Minimise employee turnover: High employee turnover can be costly for businesses due to the expenses associated with recruiting, training, and lost productivity. By investing in employee retention strategies, such as offering competitive salaries and benefits, providing opportunities for professional development, and fostering a positive workplace culture, businesses can reduce turnover and associated costs.

In conclusion, businesses can take a variety of steps to cut costs during a rising cost of living crisis. By reviewing contracts, reducing energy consumption, adopting remote work policies, implementing cost-saving technologies, offering flexible work arrangements, re-evaluating employee benefits, and reducing travel expenses, businesses can weather the storm and emerge stronger on the other side.

And you don’t have to do it alone.

Contact TAB Australia today to take advantage of one-on-one business coaching sessions and peer-advisory boards to help optimise how you conduct your business.