Wednesday, January 25, 2012

Control, Don't Cut Costs

 Control, Don’t Cut Costs
By Gregory Bavaro

In these times of economic woe, controlling costs is essential to the survival of your business.  When sales are down and expenses are up, we as entrepreneurs are forced to take a closer look at how we can run our businesses more efficiently.  This simple analysis can do so much more than get you through this recession; it can create a windfall of profits when the economy rebounds.

Many “old school” business owners, all too often, focus on cutting costs.  This can be detrimental to your business, and it is important to know and understand the difference between cutting costs and controlling them.  When costs are cut, quality and service are sacrificed and your customers suffer.  As a result, you lose customers.  Loss of customers equals loss of sales forcing you to cut more costs and creating a vicious downward spiral ending in another store available for rent.  However, if costs are simply controlled, you are able to maintain the same service and quality your customers know and expect while spending less to do so.

Easier said than done, right?  Wrong!  It’s simple.  Open up your checkbook or general ledger, whether you use Quickbooks or a composition notebook; take a look at your expenses.  Start with your biggest numbers.  If you are in a service business it will probably be your payroll, utilities, and rent.  What can you do about these?  You’re already short-handed, and neither the local utilities nor your landlord want to negotiate. 

First, stop letting your business run you for a moment and take a look around.  Is your business really short-handed or is it just you?  Look at your staff.  Are all of your hourly employees really necessary at all times they are present or can their shifts be staggered so they only overlap during peak hours?  What about your salaried personnel?  Are they managing their time properly or are they robbing you blind?  (I could virtually guarantee that time is the most pilfered asset in your business.)  Take a look at their computers (hint: check their internet history).  I’m sure there are plenty of more productive tasks they could have been performing instead of all that online shopping and personal emailing.  In addition, this might not be the right time to dole out raises.  You’d be surprised at how well you staff will handle a pay freeze when tens of thousands of jobs a month are being cut nationwide.
Concerning utilities, rates may not be negotiable, but you’d be surprised how helpful the local gas or electric company can be when you express interest in an onsite consultation on preserving energy.  They will send an expert out to your location and inform you as to how your energy costs can be drastically reduced.  In addition to the money you will save, your customers will be thrilled to hear you’ve “gone green” to help save the environment! (Make sure you capitalize on that one too!)  With regard to your rent, contrary to popular belief, most landlords are reasonable businesspeople.  They would much rather renegotiate a lease to retain a reliable tenant and continue receiving rent than sit with a vacant space.

If you’re a seller of products as opposed to services, take a look at your suppliers.  If you can buy from other suppliers, through co-ops or direct from manufacturers, do it!  There is no doubt that keeping your suppliers honest will save you more than any volume discount.  It doesn’t matter how many “rebates” and “discounts” you’re receiving, that is just your suppliers’ way of saying, “thanks for paying too much for the products you’ve been buying.”  It is important that the products you are purchasing are less expensive, not cheaper.  Also, eliminate items that aren’t selling. 

Simplify your operation and trim the fat, too.  In every business there are some luxuries you just don’t need and now is the time to find them.  If it doesn’t generate income or improve your service, you don’t need it.  Assess the services you pay for.  Can any of them be performed by your employees?  Some people enjoy cleaning, landscaping, and even doing repairs.  If there is someone in your organization who can help out with some of these tasks, not only can it save your business money, but it can also make employees feel more secure in their position.  If an employee can pick up a couple of extra hours performing a task they enjoy, it can break up the monotony and boost morale. 

The list goes on and on, and controlling costs becomes addictive.  Stay in discount hotels while traveling and compare airfares and car rentals.  Join business associations to receive group discounts on insurance.  Sublet any unused space you may have.  Cater meetings in-house instead of in fancy restaurants.  Shop shipping rates, webhosting, etc.

Controlling just your top three or four expenses can keep you out of the red and in the black right now.  As your competition falls by the wayside and your business grows, you will soon be rolling in the green. 

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