Experts warn businesses: reducing operating costs will be paramount in 2021
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2020 ended with many business owners taking measures to reduce operational costs to survive, as the coronavirus virus knocked several businesses to their knees. In the UK alone, the coronavirus claimed thousands of companies, with very few having any chance of recovery. But the nightmare isn’t over just yet for many business owners. Unfortunately, the new year still presents some uncertainty levels for many businesses (even with the roll-out of COVID-19 vaccinations), as the crisis remains.
In times of crisis, a business needs to do everything to ensure its survival – and this usually means slashing down on all costs that can be considered non-essential. The methods any business owner may choose to help reduce cost will depend on different factors, including the kind of business itself. However, there are some cost-reduction strategies that business owners of all kinds can employ to help keep their business operational and relevant through these uncertain business times.
Firstly, instead of merely freezing certain business expenses, a better approach is to eliminate them. That is because some costs you may freeze now may end up reappearing in your budget further down the line. In addition to removing certain expenses, business owners should find ways to reduce or negotiate some current rates to ensure significant reductions in final costs instead of merely shifting them. The big idea behind all this is to reduce as many avoidable costs as you can to keep you floating or free up your ability to do other things.
Planning is key to any attempt at cutting costs or reducing a company’s operating budget. And the best way to attempt any form of budget cut is to plan carefully to do it once. Cutting funds for the first time is challenging enough, and the last thing a business owner wants to do is stretch this process over several rounds. That is especially important when it comes to changes in personnel, for example. In such a case, regular periodic cuts can easily lead to a destructive cycle that creates a drop in productivity, breeds uncertainty, and ends up causing the bottom line significant damage.
Another part of planning has to do with taking the time to get a holistic view of the cost base. It is difficult for a business owner to know where or how to cut costs with a good understanding of their current cost base. Business owners can work with their financial departments to get a clearer picture of everything related to their expenses. Doing this should help throw more light on what the cost base is and how cost-cutting measures will be more beneficial or productive for the company.
Finding ways to lower financial expenditures is one of the most critical steps in reducing business operating costs. Some companies have resorted to taking up commercial mortgages as a way of refinancing their existing mortgage loans to help reduce their business operating costs. But to lower financial expenditures, a business owner needs to take some measures. One, re-evaluate all existing insurance policies to check if there’s any case of coverage duplication or over-insurance. Two, compare several insurance providers and their ratings and ask for lower ratings from current providers. Three, consolidate bank accounts or insurance policies where possible. Four, avoid unnecessary debts by conducting cost-benefit analysis and forecasting.
Other businesses choose to target immediate cash impact. That means they shift their focus to the kind of investments that will rake in quick returns instead of focusing solely on already owned assets. Other organisations have opted to sell off some of their business assets, rake in some profits, and even lease them back.
One thing we cannot ignore is the role technology is playing in helping many businesses reduce costs. Taking advantage of the right technology whenever possible can help many companies ride the current financial storm. For example, instead of embarking on expensive travels for business meetings, business owners can take advantage of virtual meeting solutions. Also, online payment platforms, cloud storage, eLearning software, etc., can all be used to reduce business operational costs in various ways.
Companies that can apply the right tech solutions will also help their employees focus on the most important things. That assists in eliminating logistic work and ensuring that workers focus on what they need to do. Fortunately, there are many applications and software solutions that companies can take advantage of, from scheduling to training and communication solutions.
While it is essential to look for ways to cut costs, business owners should also not overlook the essence of time management. As the old saying goes, “time is money,” and if there’s ever a period to avoid wasting time, it is this uncertain period. Therefore, businesses must ensure that employees work productively by putting some measures in place. One measure is to eliminate (or minimise) all forms of distractions to ensure that important tasks are accomplished on time. Companies can also invest in applications or software that can track employee working hours, highlight the hours spent on work activities, and show the employees billable hours. A third measure is to avoid or limit unnecessary meetings that eat into productive time and do not yield any immediate results. For example, routine meetings can be reduced to email exchanges with follow-up meetings only when crucial.
Business owners should also be able to address both fixed and variable costs simultaneously. Doing this will allow companies or businesses to capture a more holistic view of where the cost-cutting needs to be made. For example, IT departments should consider reducing or eliminating variable costs, as they may change with volume or activity. However, fixed costs, on the other hand, can mostly be eliminated. Although it is possible to avoid certain sunk costs, businesses may not be able to halt all their projects. A straightforward approach may be to cut or eliminate discretionary spending. However, companies may be able to have a more significant impact by reducing consumption, service, as well as usage levels.
