Unless monitored closely and regularly, costs can eat away at profits, cause increased equity dilution, or unnecessarily increase your cash burn. There are many ways to go about cutting costs; however, here are the 5 most worthwhile pursuits to cutting business costs that I can comfortably recommend every time. As always, if you have a question or think you might want to work together, please get in touch through my Home Page. Also, never miss a blog by following me on LinkedIn or Facebook.
1) Perform a Key Vendor Review
This type of cost cutting measure is not new or glamourous; however, it can yield some serious results. To perform this type of review, have your finance department pull your businesses spend for the last year by vendor, sorted by the highest spend vendors first. By the way, if this type of list is painful to produce, you seriously need to think about a new accounting system. Once you have this list, decide how deep you want to go (maybe the top 25 vendors) and create a plan for approaching your vendors. Before you go all crazy and only focus on the dollars, remember, you have relationships with these vendors and they probably treat you right. How you are treated and the service you get is important so definitely keep that in mind. However, if they don't treat you right or they are " just ok", cutting them is going to be easy for a better price. My feeling is that most vendors are receptive to a company asking about better prices as part of a cost reduction strategy as long as you are professional in your approach, the reality is that it's business, it's not personal. See what they say when you approach them, if you don't ask, you'll never know and don't be afraid to ask questions. Doing a little bit of homework in advance on competitor offers, coupons or advertisements can help with these conversations. As hard as this might be to accept, some of your oldest and best relationships could be costing you the most since price hasn't been explored recently. However, as noted above, consider all the factors (including switching time and pain) before deciding what actions to take. Before you start, you should be aware of highly competitive industries like legal, professional accounting, marketing services, banking & exchange, telecoms & internet, insurance and software.
2) Inventory Your Recurring Costs
We live in a subscription centric world. Everyone is talking about SAAS, recurring revenue, and plans. It is not uncommon for even small businesses to have over 50 corporate subscriptions recurring on a monthly, quarterly, semi-annually or annual basis. Keeping track of your subscriptions is a worthwhile exercise. Document things like:
Is the subscription still being used and what does it help us with?
Is the plan still right for us? Plans typically can be billed by users, usage or features. Make sure everything about your subscription still makes sense for your business.
Are there annual plans or coupon codes? If this is an essential service you have been using for years, there's no reason not to accept a discounted annual price or apply a coupon if available.
3) Get at least 3 Quotes on Materials, Supplies and Services
Don't be lazy when it comes to getting a fair price for new materials, supplies or services. There is a reason why large companies and governments mandate things like minimum quote numbers as part of procurement. At the end of the day, if you get at least 3 quotes, not only will you get a fair price but you can take the best mix of service, quality and price. If you only get 1 quote for new costs or renewing costs, you certainly don't have much to go on, even if someone recommended the vendor to you.
4) Seek out Grants to Reduce Cost
OPM is an old school finance term but it still has relevance today. The best way to reduce costs is to use other peoples money (OPM). It doesn't matter where in North America your business is located, I guarantee if you look hard enough, you will find free money or low interest capital to help your business. Grants and low interest programs are available to many types of businesses and industries. Wage subsidies, student programs, technology and innovation grants, tax credits, loan guarantees, loan programs, start up capital, scale up programs, etc, all exist to help you cut down on costs / fund projects and reduce equity dilution. You stand a really good chance at grants or low interest capital if you are a young / small business in science, innovation or technology. However, many other industries have their own programs such as natural resources, health care, etc. In addition, if you own a business and you are from an under represented segment of the population (IE, women in business, a visible minority, etc) there are even more programs out there to help support and start your business. Programs are always changing and follow what the current governments and agencies are looking to support. If you haven't looked for a while, it might be worth it. To get started, in Canada, check out the Government of Canada's Grant and Programs tool for options:
5) Open Policy on Investment and Tools
A famous Steve Job's quote goes like this: "It doesn't make sense to hire smart people and tell them what to do; we hire smart people so they can tell us what to do." I personally love this quote because in my mind there is nothing in any business not worth exploring for improvements. You likely have a pretty intelligent workforce and they are likely quite in tune with how they best work and the potential tools out there to help them succeed. As a result, empower your employers to come up with recommendations and solutions to make things more productive. An easy solution for a growing business is always to hire more employees, however, given today's ever expanding technology offerings, outsourcing options, and evolving best practices / automation, hiring doesn't make sense in every case. I bet that if you pro-actively empowered your employees, you could easily find some better ways to do more with your current workforce.