As the external environment tightens, small businesses are feeling the pressure to be competitive more than ever. Businesses that reduce costs and operate efficiently enjoy increased margins and can boost revenue by passing some of these savings on to their consumers. A key task for high achieving leadership teams is to identify areas to reduce cost and waste. Although every business’ needs and cost profiles will be different, there are some common areas where businesses can reduce costs.
Embrace Lean Inventory Management Practices
Holding excessive inventory is a sure fire way to increase your operating costs. Every item of inventory you hold increases the cost of storage, insurance and handling. Carrying unnecessary inventory also increases the likelihood that some of your inventory will be lost, stolen or damaged, or become obsolete.
One approach to reduce inventory is by stopping or slimming down recurring orders if inventory is building up. Safeguarding against supply chain disruptions is, for most businesses, one of the key reasons for holding stock. Many businesses respond to this concern by implementing ‘lean’ inventory management practices, allowing them to operate with minimal levels of stock.
Manage Debt Effectively
Many businesses are debt funded, particularly at an early stage of the business. Although debt can provide working capital when cashflow is tight, it is important to keep a close eye on debt levels and manage interest rates. Small businesses often charge smaller expenses to credit cards but these incur a high interest rate and should be used sparingly. If your business has high interest debt, debt consolidation may reduce the long term costs.
Shake up your Suppliers
If you have been working with the same suppliers for a long period of time it may be time to search for a better deal that will benefit both you and your supplier. Suppliers become complacent over time and, if you are considered a stable client, may not offer their most competitive terms or prices. This is particularly the case if your supplier’s minimum order quantities are, in practice, one of the key reasons you are holding so much stock. Reach out to your suppliers and other businesses in the same industries – even if you stay with your current supplier, you’ll know how much other firms charge and what level of service they are able to offer.
Technology allows businesses to save money in ways that were unimaginable a decade ago. From ecommerce solutions and customer relationship management software, to inventory management software, specialised products are making it easier and cheaper to run a small business. For example, cloud-based inventory management software allows SMEs to keep track of inventory and manage cashflow from anywhere in the world. Better inventory management technology fundamentally changes the reasons for holding stock; there is less of a need for large reserves of safety stock.
Cut Production Costs
Reducing direct production costs are a time tested way of increasing your business’ margins. Unfortunately, going to a significant effort to reduce the cost of one raw material is not going to matter if the costs of your other key inputs are not under control. If a business produces a range of complex products, managing procurement and production costs can prove to be difficult. Inventory management software makes it easy to keep a tight eye on production costs; features such as bills of materials and assembly allow you to see exactly what materials are going into what products. This makes it easier to keep track of costs and to fairly price products.