What you should know about cutting business costs
Savvy business owners are always on the lookout for ways to cut costs within their business. If you want to keep your business healthy you will always have to be looking for things that can be cut to lower costs. If you fail to be vigilant about cutting costs you may soon find yourself shutting the doors to your business or taking down your website. Keep in mind that studies have shown that a majority of businesses that fail do so because the owners have failed to manage the finances. It should also be noted that this failure can occur even when the business has a tremendous amount of sales. However, it is important to understand that while cost cutting should be done business owners should cut costs with precision. What this means is that if you fail to cut enough your business may still go under while if you cut to deeply your business may not have enough to survive. Here is what you should know about cutting business costs-
- Cut anything that doesn't add to the bottom line-If there is anything in your business that does not add to the bottom line then you should cut it. If you can't afford the luxuries and they don't make your business more profitable then you need to get rid of them or at the very least significantly reduce them. You should keep in mind however, that this type of cost cutting does not include payroll. It can be helpful to have your employees contribute their opinion about what costs can be done away with.
- Cut anything that isn't producing-One of the biggest expenses in this category will be the business payroll. You will need to look closely at your production or sales hours and make sure that your staffing hours are in line. If they are not you may not have the right number of employees working at any given time. Remember in making this determination you need to focus on productivity. Keep in mind that you may not have to cut jobs but rather scale back or move employees around to boost productivity. In addition, you may be able to use fewer employees and extend your hours of operation which can increase productivity. This helps you to cut costs, increase productivity, and not have to layoff any employees.
- Cut anything that does not have a high rate of return-You need to make sure that every dollar that you are spending has the highest rate of return possible. This is especially true when it comes to marketing. When many business owners begin to cut costs they look at marketing and feel that it is a disposable cost. This is always a mistake. Keep in mind that if your customers don't know what you can offer them or where to find you they won't even consider buying from you. This means that you should not just cut marketing but rather focus your marketing dollars where they will bring the biggest return. If you have other investments within your business that are not paying off you should consider reallocating the cost (as described with marketing), or cutting them altogether.
- Cut anything outside of your business that is not contributing to profitability-One of the biggest expenses in this category can be travel. It is important for business owners to realize that there is a great deal of technology that can make a lot of travel unnecessary. Many businesses are now using video conferencing in order to avoid the expense of sending employees to a meeting or conference. This type of cost cutting measure still allows the business objective to be achieved without the cost of flying, driving, hotel, and other expenses. This type of cost cutting measure can be applied to other business functions, as well.