On the face of it, cutting costs sounds pretty simple. In reality, if you know your numbers, it is rather simple.
Here are some ideas to evaluate for potential cost-savings in any business:
- Insurance – whether it’s commercial, auto, or health insurance, if you haven’t shopped around in a few years, you need to. This area alone has saved my small business $9,000 over the past 2 premiums with slightly better coverage. Granted, it took a lot of time and energy to get to that point, but how can you argure with that level of savings?
- Telephones – cell phones and land lines can both be EXTREMELY over-priced if you don’t shop around. Make sure you have the best group or individual or combination of the 2 for all of your cell phones. For land lines, if your internet is reliable enough, you seriously need to consider VOIP. VOIP stands for Voice Over Internet Protocol and simply means using internet data lines instead of phone lines for your phones. In my business this would save us about $250/month IF we had reliable internet. Our internet is very spotty, has little competition, and relatively slow so we’ve tested with VOIP several times and just can’t make it work. :-/
- Vendors – When was the last time you renegotiated with current vendors OR shopped around to make sure you’re getting the best rates? Through buying in bulk, group purchases (with similar businesses), shopping around, and good old fashioned renegotiating (particularly on things like fuel charges and freight expenses) you should shoot to save 5-10% on all of your purchases. While your at it, double-check your retail price list and make sure your mark-ups are sufficient. We found a handful of items on our price list going for little to no mark-up as we performed this exercise.
- Pre-payment discounts – While you’re calling to renegotiate prices with your vendors, be sure to find out if they offer pre-payment discounts. Those are simply discounts for paying early which could be within 10 days, or 10 days after the end of the month, or whatever their terms are. If you consider those discounts can range from 1% to 5% this can be VERY significant. If your business buys $200,000 in products each year, at 1% you would save $2,000 year or$167/month just by paying a few days earlier!
- Meals & Entertainment – and all other “discretionary” spending. Are those meals, trips, expensive hotels, etc. etc. etc. really necessary? If they’re an integral part of your business recruitment strategy then fine. But make sure your deducted-meals are actually legit. Meals are only allowed for documented business purposes (i.e. names, place, and business discussed all have to be available to the IRS) and overnight travel. Even then, only a portion of those meals can be deducted. The upper-management of Walmart and Sam’s Club are still required to fly coach and book modest rental cars when traveling just like their founder always did.
- Shop around for cheaper services – Every business needs the help of other businesses to get things done. This could be your IT firm, your accountant, lawyer, bottled water delivery company, tire and oil change business, uniform company, or even your payroll company. I’m well aware that it’s very hard and expensive to find a lawyer you trust, so if that’s something you already have, I’d leave that one alone, however the others can be done with relative simplicity. Just changing our payroll from Paychex to Quickbooks has saved us over $100/month (though QB prices have just gone up slightly so the gap is lessening).
- Improve Efficiency and Productivity – This is probably the most important of all of them which is why I put them as a separate step in a separate category for fixing your business. This all boils down to basically 1 thing: Paying people for the results they deliver.
In a nutshell, that’s what an efficient, productive business will consistently do. It will pay people for their work. What a novel concept, huh? Now you need to determine if your business is a better model for a Results Oriented Working Environment (ROWE) like I discuss in my blog on Intrapreneurship and Entrepreneurship or whether your business simply needs to get away from paying everyone an hourly wage with no incentives.
Here are the steps to take to increase productivity for every employee in your business:
- Make job descriptions – If your people don’t know exactly what their duties are, you as a leader aren’t even giving them a chance to succeed. Everyone needs a job description and possibly even a daily, weekly, and/or monthly checklist to make sure they’re taking care of all of their responsibilities.
- Create processes, procedures, scripts, and checklists – This goes hand-in-hand with a job description. If you don’t have scripts to teach people how to handle customer inquiries, procedures for how to track those inquiries, and checklists to make sure nothing has gotten missed you will never ensure a consistent customer experience. Making this fundamental throughout your business is the key to successful franchising. If you want a successful, universally applicable, consistent business, this is your foundation. This will also help you determine who on the team needs to stay and who needs to go.
- Know your numbers – My last blog dealt with this in detail so to just make the point quickly… If you don’t know the income and profit per person on your team it’s very hard to develop benchmarks, set goals, and recruit new people who you believe can achieve those goals.
- Remove temptations to “cheat the system” – In my business this comes in 2 major forms. No temptation to play on the internet for the office people, and no temptation to take extra long lunches or sneak home early for our service guys. The first is temptation is removed but letting everyone know their internet usage is tracked and will result in dismissal if internet use is inappropriate. GPS systems on our service trucks take care of the latter temptation. Very rarely do I ever analyze either item. Basically it’s just there in case a problem develops.
- Incentivize and create healthy competition – I still credit the doubling of our profit/day/technician in large part to converting a portion of technicians’ income to commissions. Find ways to incentivize everyone on your team to do their best.
- Get rid of those who don’t stack up – If you’re the kind of guy who hates to let people go and so cuts everyone’s pay instead of just letting the weakest link go, you need to change your practice immediately! There is nothing worse for morale then to have everyone “punished” with lower pay when the low-hanging fruit needs to go (and everyone but you knows that). If you really feel that bad about letting an unproductive employee go, cut your income first before any one else’. To keep costs down, review my blog on how to let someone go without paying unemployment.
Keep in mind, that the more drastic the situation the more drastic the cost-cutting measures required. Act quickly and decisively and move on. If you make a mistake in that process, learn from it.
To your cost-cutting success, Bryan