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As businesses prepare for a tough year ahead due to the current unpredictable economy, struggling consumers and resource constraints, more emphasis should be placed on cost-cutting initiatives as well as saving for future business needs.
That’s according to Elize Giese, head of investments for FNB Business, who says businesses that have well-devised savings strategies can boost profitability and cater for unforeseen expenses in times of difficulty. Regardless of whether the business will use the savings for short or long term needs, depending on its nature and cash flow requirements, preserving cash by cutting costs should be regarded as one of the key priorities this year.
She unpacks some cost-cutting strategies that businesses should consider:
* Outsourcing – outsourcing support functions such as marketing, events management and public relations can help small businesses to cut costs. Opting to use a service provider that charges an hourly or project fee can often be less expensive that hiring a full time employee.
* Rewarding good work – retaining talented employees can save the business a lot in human resources’ costs and also encourage workers to be more productive. For example, stores that offer commission often encourage employees to go the extra-mile, leading to an increase in sales.
* Networking – attending business conferences and gatherings can help business owners to meet potential clients and business associates that can share new business ideas and cost saving strategies.
* Cutting down on meetings – simply cutting down on travelling to meetings and using facilities such as conference calls and Skype can generate huge savings for businesses.
* Discounts – negotiating and entering into long term contracts with your suppliers can earn the business big discounts on certain products and services. Your supplier wants to stay in business too, and they are dealing with a tough economy just as you are, so they may be willing to offer you a better deal rather than lose a regular customer.
* Digital marketing – using less expensive, non-traditional social media platforms such as facebook and twitter to engage existing and attract new customers, can save the business a lot in marketing costs.
* Sponsorships – many businesses rely on regular events with their customer base and often get sponsors to help cover the costs of these events. In return they have an opportunity to advertise at the events – both host and sponsor win.
* Think beyond cash – when cash gets low, as tends to happen in small businesses, don’t close the door on getting what you need. Think about the old practice of bartering. You may be able to offer your supplier a product or service they need. So you could exchange items instead of paying each other cash.
* Keep customers happy – word of mouth advertising is very effective and free! It is also much easier retaining a good customer than attracting a new one.
* Share you expert knowledge – you could share you industry knowledge at an event or radio/TV interview. This gives you and your business excellent exposure at no cost.
* Less printing – cutting down on printing can help the business to save costs. For example, consider using the overhead projector for meetings and digital business cards, instead of printing.
* Water and energy costs – devising strategies to save on electricity and water usage can have huge benefits for the business in the long-term. For example, some SMEs have already started saving costs by installing solar geysers in their work premises.
Giese says these strategies are by no means conclusive and will often differ depending on the nature of the business. Therefore, it is important for businesses that want to save money to prepare more comprehensive cost cutting plans which take the entire business’ operations into account.
“Once you have successfully cut costs and preserved a bit of cash, the next step will be to find the best saving or investment vehicle that suits your business needs,” she says.