There are two basic ways to increase your profit margin. The first is to increase your revenue by increasing your sales and increasing the price of your products. The second is to decrease your costs. Before you sound the death knell on employees and jobs, take note: cost cutting doesn’t have to be a morale-destroying exercise in staff redundancies. Instead, successful cost cutting involves looking critically at your suppliers, considering their essential function and getting the best price for what they provide. Here are three key areas to look at in the name of cost cutting.
1. Do a little homework and reduce your bank fees
An essential part of any business is the way you deal with cash. There’s a host of competing financial institutions offering business accounts with different features, such as unlimited electronic transactions, fee-free cheque deposits and flat-fee overdraft facilities. Choose the right one for your business and keep in mind that your business banking needs will change as your business changes, so don’t lock yourself in long-term.
Competition in the industry is also intense, so you might find that financial institutions are willing to compete for your business. One of most frequently dangled carrots is a sign-on discount. Just beware of one-off benefits that can mean overall higher costs in subsequent years. Do your homework and always, always read the fine print.
2. Fixed costs are not entirely fixed
Costs such as overheads, utilities, phone and internet bills may be fixed for the year, but they are often also negotiable upfront. With an influx of providers, suppliers are becoming more competitive, so it’s worth hunting for business bundles that help your bottom line.
Of course, time is a luxury and for small business owners, browsing the internet for the best deal often feels like Alice in Wonderland falling down a rabbit hole. A more time efficient strategy might be to look at one bill per month or quarter to see whether you can get a better deal, or take a user-friendly shortcut and use websites that compare similar products all in one go.
3. Play by the rules and pay on time
Recent changes to the law means the ATO’s minimum penalty for late lodgment of BAS and tax returns has increased. In addition, suppliers often charge flat-rate penalties or penalty-rate interest for late payment of bills. So get on top of your bills and plan to pay them on time or even early. Some suppliers offer a discount for early payment – if you don’t ask, you don’t know. In contrast, late payments can damage your credit rating and relationships with suppliers. This could amount to a longer-term cost on your business and is an undesirable outcome.
Cost cutting doesn’t necessarily mean going without a product or service that supports your business. It also doesn’t mean that you have to give up quality of a product or service. Just think about the core needs of your business and ask yourself, ‘can I get a better deal?’.
What initiatives have your introduced to help cut business costs? Share the love over on the Optus Facebook page!