This guide will give you some great tips on how to cut costs when times are hard so that you can make the most of what you have and keep your head above water.
When sales are down, customers have disappeared and you're dipping into personal savings or your home loan to pay your staff, you need to implement some practical and easy cost-cutting strategies.
Here are some of the most effective ways to reduce expenses:
1. Save on rental charges.
Rent unused space and office equipment to a business owner or a freelancer who needs it. You should be able to charge per week or month to rent out a desk, computer, printer, phone and support services to a needy entrepreneur. Advertise on Gumtree or Junk Mail.
2. Slow down on inventory.
You have to buy your product or make it before you can sell it. Even if you put the product on your shelves and wait to sell it, your suppliers expect to get paid. Remember that every rand you have in inventory is a rand you don't have in cash.
3. Speak to your bankers.
Plan ahead when it comes to banks because they don’t like surprises. If you see a growth spurt coming, a new product opportunity or a problem with customers paying, the sooner you get to the bank armed with charts and a realistic plan, the better off you'll be.
4. Negotiate lower bank fees.
In this competitive climate, no fees are set in stone. If you are a good customer with several thousand rand in your account, negotiate with your bank manager to settle on lower bank fees and charges.
5. Stop buyingall but essential supplies.
Ask employees to use the stationary they have to hand. Make use of all the free note pads, pens and other promotional items you've collected from trade shows.
6. Examine cell phone use.
Employees who rarely leave the office or travel on company business do not need to have company cell phones.
7. Review and update your business insurance policies.
If you have sold a truck, car or other insured equipment, call your broker to remove it from your policy. Make sure you take advantage of any special discounts you may qualify for.
8. Limit business travel.
If you have to fly across the country for a meeting, set up several other meetings with current and prospective clients to justify the cost. Stay with friends or relatives to save money on hotel bills. You may also want to try video conferencing instead of face-to-face meetings.
9. Conserve energy.
Turn off lights, computers and air conditioners when you leave the office. Conserving energy saves money and resources. Replace your old light bulbs with energy-efficient ones.
10. Ask new vendors and suppliers for quotes.
Compare prices and renegotiate with your current vendors on the materials you use to make or package your products if you are offered a better deal.
11. Stop giving expensive gifts.
Make small charitable donations in honor of your best clients, or send them gift vouchers for movie tickets, a visit to the spa, or a meal at a family restaurant.
12. Buy advertising space after the official closing deadline.
Small newspapers and local radio stations will often sell you unsold space and time at a substantial discount. Have your printed ad or radio commercial ready.
13. Take advantage of online discounts offered by airlines.
This can save you a lot of money if you are prepared to be flexible. Review your frequent flier loyalty programmes and use the miles whenever possible.
14. Watch your cash flow carefully.
Don't try to do it in your head. Making the sale doesn't necessarily mean you have the money. Incurring the expense doesn't mean you’ve paid for it already. Inventory is usually bought and paid for and then stored until it becomes cost of sales.
15. Get the cash from business-to-business sales.
Sales mean money, but when you're a business selling to another business, it's not always that simple. You deliver the goods or services along with an invoice, and they pay the invoice later, sometimes months later. Make sure you follow up with these clients and agree to set payment terms so you can get your money faster.
16. Watch three key vital signs.
"Collection days" is a measure of how long you wait to get paid. "Inventory turnover" is a measure of how long your inventory sits on your working capital and blocks your cash flow. "Payment days" is how long you wait to pay your vendors. Always monitor these three cash flow metrics and do projections for the 12 months ahead so that you can compare what actually happens with what you planned.