Business clinic :How to lower your costs

If as encouraged in an earlier article, you now religiously track what your enterprise earns and sells, it will be easy for you to peruse your records and identify the areas where you spend the most. Those areas provide a good place to start as you look for places where you can lower costs. Although all businesses are different, below are some general suggestions.

Negotiate with suppliers: Suppliers are usually willing to offer loyal customers slightly lower prices in return for dedicated custom, especially for bulk purchases. If your enterprise is too small to make bulk purchases on its own, consider partnering with similar enterprises and approach suppliers as a joint unit. Your combined requirements will create bulk orders for which a serious supplier should be willing to offer discounted pricing.

If at any time it looks like your enterprise is falling behind on important payments for example bank loan repayments, tax payments and electricity bills; proactively inform your creditor about your situation. Further, suggest a reasonable payment plan that will allow you to pay your dues in regular instalments that the enterprise can handle. Do not wait for your creditors to take action against you.

Identify alternative sources: Look elsewhere for suppliers who can provide the quality you are looking for at a better price.
Lower frivolous consumption: Do away with the items and activities that are not absolutely necessary for the business to operate. With escalating costs, must the company really host expensive birthday lunches in honour of each employee’s birthday? Does the company really need a fleet of company vehicles?

Consolidate activities: Instead of having the messenger dash to town three times a day or more to run errands, pick just two days a week for town runs; unless there is some kind of emergency. You will greatly lower transport costs and might even be able to cross train your messenger on some other aspect of your business. What activities can you consolidate?

Downsize: If your product catalogue lists over 30 unique items, how many actually sell? Rather than spending scarce resources on producing and/or stocking items with no demand, identify the best or fastest sellers and get rid of the rest, unless you have a sound strategic reason not to. Sarah narrowed down her 65 item handicraft catalogue to her top 15 bestsellers and now spends much less on raw materials and temporary workers.

Downsizing a product line is much easier than downsizing your staff. If you view it as a rational business decision however, it might become easier. Do you really need all those workers or are some simply running up your costs without making a meaningful contribution? Let the non-contributors go.

Eliminate re-work: Train employees to get it right the first time to avoid the costs associated with re-doing any given activity.
List your enterprise’s expense categories, invite your staff to brainstorm cost cutting measures and take action.

Next week: How to price products
E-mail: dorothy_tuma@dmtconsultants.net