How to Reduce Operating Costs In Business
You have a booming small business but you aren’t making any money. You’re taking in more orders than you can handle or you’ve got more clients than you need. Somehow you’re still not banking extra money. If you have this problem it could be that you need to either improve efficiency or try to find a method for cost reduction.
But what can you do? It might seem like your business’ expenses are fixed. You can’t cut the lights off, you need them to work. And you don’t want to fire employees because they are needed to do the work to keep your business running. What can you do? We have 12 great tips to help you cut your operating expenses without suffering. This will help improve your bottom line.
12 Tips for How to Reduce Business Operating Costs
1. Get a Custom-Developed Software
If you want to reduce your business costs, one thing you can do is invest in custom software for your business. Custom software can be made to do the task of multiple different software programs that you are probably paying a premium for on an annual basis. Additionally, with some software, you can even connect multiple different software platforms for improved data insights.
This improved connectivity between different departments and software can help you to save tons of money on your operating procedures. For example, if you choose to develop middleware for your business that improves data integration, you can reduce the expense involved in reporting.
Another reason why investing in custom-developed software can improve your business’ expenses is that you can create a software program that automates some of your processes. Automation can help businesses save up to 70 percent on their operating costs.
2. Ask an Expert
Another way method that you can use to save money on operating expenses is to ask an expert. For example, you may be used to doing all your tax accounting yourself but this can cause you to pay more money than you need to because you’re not looking for deductions that an expert accountant or tax attorney might know of offhand.
Typically, using the services of an expert accountant or other tax professional will cost some money that you might not normally spend. However, using their services can not only save you on time that you could be doing other things to further your business but it can also save you thousands of dollars in tax expenses annually.
3. Negotiate for Better Rates
If you’re looking to save money on fixed expenses one thing you can do is attempt to negotiate with vendors and other providers on your costs. While this tactic won’t always work, there’s no harm in trying to negotiate.
This practice also works well with your clients and customers. If you find that you are at capacity for your business services but are having trouble making ends meet, it may be time to negotiate higher rates. Doing this will help you to receive more money for your valuable service and help you to better meet your operational costs.
4. Allow Employees to Telecommute
Another way to lower your operating costs is to allow your employees to telecommute. While many businesses were forced into this option during the COVID epidemic, many have remained in a remote work mode because it allowed them to reduce operating costs.
For example, if you allow half of your employees to telecommute, not only will they be happier because they don’t have to spend time commuting to work anymore but you will also be able to save on lighting, heating and air conditioning, as well as other expenses tied to having employees in your office.
While this tip may not be useful for production-based businesses, it can be useful for service industry professionals who do not need to be in the office to do their work. This can also be made easier with custom-developed software that allows your employees to work remotely.
5. Pay Invoices Early
If you want to save on expenses for your business, another method you can use is to pay invoices early. This is particularly helpful if you negotiated better rates with your vendors. You may have a supplier that would like to get paid early and by discussing your rates with them, you may be able to negotiate a discount if you pay your invoices in 15 days instead of 30.
Furthermore, this helps you to avoid late fees on your services. If you have a habit of paying invoices at the last minute, you may not even notice the late fees attached to your next invoice. This can happen especially if you pay your invoices by check rather than electronically.
6. Use a Customer Relationship Management Software
This tip doesn’t save you money at the start. What it does is save you money by allowing you to improve your operating processes. A Customer Relationship Management software or CRM is a program that allows you to analyze and manage your interactions with customers.
Using a CRM can help you to reduce the amount of time it takes to deal with your customers and clients. It also helps you to improve your intelligence with your entire customer base and can help you to see if the services or products you are offering are not working for your business.
With a CRM integrated into your website, you can increase customer service without having to add an extra salesperson. This can help you to improve your productivity of staff without adding extra staff, saving you money. 50 percent of teams who used CRM increased their productivity.
If you’re thinking about using CRM software to improve your business’ productivity and help you to decrease employee costs, consider working with a custom software development agency to better manage the process of integrating it into your systems.
7. Cancel Unused Services
Just like how you did at home with your unused Netflix account (who are we kidding, no Netflix account goes unused), you need to reevaluate the services that you use to see which ones are integral to your business.
For example, if you use Google to manage your business’ email accounts, it’s more than likely that they offer you the full gamut of GSuite services to help your business manage its documents, spreadsheets, and slide presentations. If this is the case and you’re also paying for Microsoft Office, it may be time to consider making the move to GSuite and canceling the other services.
This is true for all your services. Make sure that you are using each one fully or see if something cheaper meets your needs. And if you’re not using a service at all, cancel it without looking back.
8. Buy Energy-Efficient Equipment (Including Lighting)
What kind of equipment are you using in your business? Are you using older model equipment that works just fine but using electricity like it’s going out of style? If so, it might be time to consider purchasing new equipment.
When you buy energy-efficient equipment and lighting fixtures, you can save thousands of dollars of electricity a year. Typically, an incandescent bulb uses 75 to 80 percent more electricity than an LED bulb. Check out this calculator to calculate your savings.
By buying energy-efficient bulbs and equipment, not only will you save money but you will also be helping save the environment, which can be not only a great PR strategy for your company but also simple good citizenship.
9. Hire Freelancers Where Appropriate
Depending on the rules of your state, you can hire freelancers without all the extra employee taxes and insurance expenses that you have to use for your hourly and salaried employees. Because the rules for freelancers or 1099 employees varies from state to state, it may be good to consult a human resources professional before choosing this option.
However, by choosing freelancers, you can still receive quality work products without having to spend all those extra taxes and fees associated with a traditional employee. Freelancers are often skilled and professional but like the freedom of being to work when they want to.
10. Find a Smaller Office Space
Do you need the big office space that you currently are occupying? If you can downsize your organization’s office space, it can be a good way to reduce operational costs. You will not only save on rent expenses but lighting, heating, air conditioning, and maintenance costs.
One big trend in office space management is choosing shared work environments. Only you will know if a shared workspace like WeWork is good for your business. But take the time to evaluate if you might benefit from a downsized office space situation.
11. Review Your Processes
Another good way to help reduce your operating costs is to review your business’ processes. There are likely things that you could be doing better than you currently are doing them.
If for example, you are a manufacturing organization, is there a way that you can enhance your manufacturing process to put out more items in less time? Could you move machines around to reduce the time between one process and another?
Ask your employees for their opinion on how to improve processes. Not only will you show them that you care about their opinion but also they are often highly knowledgeable in their area of expertise and have ideas about how to improve the process of your business.
12. Inventory Your Items
Our final tip for how to reduce operating costs in business is to inventory your items. Running a semi-annual inventory can be a way to identify extra items that you may have overlooked throughout the year.
This can help you avoid having to reorder products and supplies earlier than expected. By improving the time frame between reordering products and supplies, you will help your business to grow and thrive.
If you’re trying to figure out how to reduce operating costs in business, consider talking with Idea Maker, an Orange County custom software development agency. We can build you software that helps to lower operating costs, improve productivity, and increase sales of your products or services.