To reduce expenses in the company is a way to make it more profitable, improve profits and/or cash flow. And this applies to consolidated companies as well as to a “startup”.
Although rising sales is also an option. In fact, it should be the goal of every company. But we will talk about that later.
Reducing expenses does not mean eliminating expenses just for the sake of it. It is important to have a plan indicating the nature of the expenses, and in each case, to proceed to their elimination or optimization.
How to reduce expenses in my company
We are going to see a series of tips to reduce expenses. But first we are going to see the types of expenses that exist in a company.
Types of expenses
We have to differentiate between four types of costs and expenses.
- Direct costs. Those that are linked to production. They correspond to the resources and/or raw materials used to produce a product or provide a service.
- Indirect costs. These are also linked to production, but are not a direct consequence of it. They are, for example, those related to administration or marketing.
- Fixed costs. Fixed costs are understood to be those that do not vary according to the volume of production. They may or may not be recurring. For example, the rent of an office or warehouse, the cost of a license, consultancy, etc…
- Variable expenses. Unlike the previous ones, these do vary according to production. They are, for example, the energy of a factory, etc…
How to reduce expenses in my company and strategies to follow?
The first thing to say is that it is always necessary to have a budget, reflecting income and expenses. The lack of this is one of the most important financial mistakes of a company to avoid.
In this case, the budget will subsidy us to make a forecast of expenses, at the same time that it serves to have clear that funds we have to spend.
And this must be done every year, seeing what has happened the previous year, but also trying to anticipate what is to come. Above all, if we know that we must incur in some expenses already foreseen. And let us remember, because we have already explained it on other occasions, that this budget must be monitored periodically throughout the year.
Ideas to reduce expenses in my company
Once we have a budget, and we are reviewing it throughout the year to see its evolution, we can do more things.
Automate processes
In order to reduce costs, it is essential to have new tools that allow us to automatically perform processes that were previously done manually. This improves efficiency and reduces the risk of errors that can cost money.
To improve cost control, it is necessary to have the information digitized in order to have the best possible control over it.
Being part of the world of digitization means having the opportunity to access new technologies to automate all kinds of processes. And this will lead to an optimization of resources.
Review your expenses periodically
As we said before, reviewing expenses periodically every month or quarter will help to identify items that are not necessary, or that we can reduce.
Negotiate with your suppliers and customers
Offer your customers some considerations so that they either do not renegotiate the price of your products/services. Or, they adjust to the most efficient way for you in terms of logistics. Or, their payment terms.
As your customers do to you, do the same if you think your suppliers could help you reduce costs. Enter into an amicable negotiation and reach a mutually beneficial agreement. Depending on what is involved, you can negotiate a longer term commitment, or in exchange for a certain volume of orders. But always, keep your independence in the decision.
Never depend on a single supplier/customer, because if he fails you for any reason, you will be lost.
Manage payments and collections carefully
It is essential to have a proper payment and collection policy. Make sure that these occur at the agreed time.
To do this, you have to check accounts receivable and accounts payable. Being careful in this regard saves unnecessary banking costs caused by guarantees, non-payments, management fees, etc.
Generally, the most frequent payment and collection errors are discounts not applied in contracts and complex purchasing processes. As well as income not received due to an error in the application of purchase conditions. In addition to incidents in financial flows due to incorrect accounting of invoices and credit notes.
Create savings awareness in your organization
One of the keys to achieve cost reductions in the company is to promote a corporate culture of savings with the awareness of workers. Do not hesitate, invest in training, which is never an expense but an investment. A trained staff will not only be more productive in the medium and long term. But also, it will subsidy in the detection of opportunities to reduce costs. In fact, good cost control also means good energy consumption.
For example, employees should be encouraged to turn off their computers and lights when they are not in use. Reduce document printing costs by encouraging digitization, promoting the printing of only what is necessary.
Outsource services
Sometimes, the volume of work generated by a specific area in a company is not enough to hire a person. Or, even if it is, it can be outsourced in a more efficient way. But it may also be the case that we do not have the resources, or they are too expensive, to respond to a specific need.
Whatever the case may be, outsourcing services can help you avoid costs and obtain great benefits and results. Especially if you put yourself in the hands of real experts.
Reduce financial expenses
Use tools available on the market, depending on your needs. Instead of committing an investment in certain assets, you can pay for their use and maintenance. For this, leasing for companies has become for more and more companies and freelancers their choice for vehicles, computer equipment, etc.
Think that normally, being especially an SME or a self-employed, your bargaining power with a financial institution, tends to zero.
Take advantage of social networks
The use of social networks allows us to achieve several objectives. From making ourselves known, to building customer loyalty. But we can also use them to get a series of services at a lower cost.
For example or ideas to follow.
We can use them to make our own personnel selection processes. LinkedIn is an option that allows us to make a previous study of the candidate’s CV, for example.
There are many companies that provide customer service, via Whastapp, Twitter (now called X), Facebook, etc.
But, in addition, if we use these networks, or also specialized forums, to give tutorials on our products, we not only make ourselves known. But we can also save costs as it is often the customer himself who solves his own doubts.
Needless to say, the pulse of what our customers/consumers think of us. Which, in addition, we can focus it as a market study. Either because of how they interact with us. Either because we can even make surveys, simple but useful, and use their answers to redefine our products and / or services.