Ways to cut your company`s expenses during crisis
Table of Contents
The pandemic is a test for all of us, and especially for business. Small and medium businesses are suffering losses due to the Coronavirus and restrictions caused by lockdown. Many are already on the verge of closing. During a crisis, many companies are faced with the need to quickly adapt their business to changing conditions in order to maintain its effectiveness, thereby solving the issue of survival. In these conditions, the most important of the questions management is facing: how can you reduce costs? In this article we decided to gather information about cost cutting and offer you some office cost reduction ideas.
What is cost cutting measures?
According to Investopedia, cost cutting is measures taken to downsize expenses of the company and to amplify its profit. As a rule, these measures cost cutting is applied when company have financial problems or during overall economic crisis. It also can be a part of a long term strategy for the business expecting to face difficulties in the future.
During the period of economic growth it is easy to stay flourishing. However, at the time of recession almost every industry experiences difficulties in moneymaking. And then management feels pressure from the stakeholders who are absolutely not interested in diseconomies and willing to gain profit.
Cost cutting is an ongoing effort specifically designed to control costs and reduce them while maximizing business value. It is all about ensuring that the business gets what it pays for or gets the most out of its investment. Optimization of company costs and expenses is the search and implementation of a more efficient way of managing finances. No business can exist without costs. However, expenses should be useful: the enterprise is profitable when every spending leads to a yield. Cost cutting initiatives in office will help to increase profitability, avoid economic problems and keep the company afloat even in times of crisis.
While implementing cost cutting measures it is extremely important to have a strategy which analyzes costs and refers to them as good and bad ones. That helps to focus on what to do next.
Cost saving strategy
Before developing a cost-cutting strategy, you need to establish a systematic accounting of costs at all sites and divisions of the company and identify unnecessary costs. To fulfill this you should classify good, bad and the best expenses. Good costs are those necessary for the company`s growth, while bad ones rather wastes resources pointlessly. The best costs are spending which makes the company unique and creates the brand. Next, the company must select the costs that most affect the bottom line and determine which of them can be reduced without compromising operational performance. Each company determines the impact on profit individually. The specific effect of each item of expenses in the share of profit or the frequency of expenses occurrence, the impact on product quality, the feasibility of their implementation can be taken into account. Having determined the costs that will be adjusted, they develop a strategy to reduce costs and save resources, where they indicate the costs that need to be reduced, measures to reduce them and the economic effect.
Cost saving measures in office may be applied to many areas and include reduction in salaries or amount of workers, revision of old resources and technologies, office relocation, etc. Here are some possible steps you can take if you are trying to cut expenses of the company.
Rethink your office space
The world is shifting to flexible hours: companies are implementing a four-day week, getting rid of rigidly fixed working time, and moving into co-working spaces to avoid wasting office space. Think about it: what are you using the office for? If mainly for meetings, then they can be held in co-working spaces and restaurants. In co-working spaces you can also rent several tables or transfer some of the staff to remote work to reduce the square you possess now. However, there is another effective way to reduce the cost of renting premises: you can rent part of your office or even share the same room with another company but in different shifts. Additionally, you can relocate your office from the city center to a different district where renting price is dramatically lower. Or choose a smaller building and make your team hybrid implementing hot desk system.
Regularly check other expenses
Every business has an item called “Other expenses”. It is not directly related to making a profit. Such non-strategic expenses include the purchase of office supplies, office equipment, meals for employees, paying for the Internet, corporate parties, etc. They also need to be controlled: keep records and track purchases. Think about whether you need so much stationery? Or is it possible to reduce its purchases by one and a half to two times? Do you need 5 printers for 25 employees in an office? Or is it enough to have two machines and, accordingly, two sets of ink and paper? Is it necessary to maintain your own canteen or can you order food with delivery? Reconsidering non-core spending can help reduce costs, which can be a lifesaver for small businesses in difficult times. Without supervision, people tend to spend more resources even when they do not need it. For example, you can create a schedule for spending office supplies and find out how much paper, pens, and other items are required per month. This will help to establish a procurement calendar and optimize their volume, which means, reduce the budget for office supplies. Try buying used equipment and furniture. Often, inventory, raw materials, equipment and other things necessary for operational activities are the largest part of business expenses. Cut unnecessary monthly subscriptions and memberships which do not bring much use.
Control the use of Internet and phone connection
Often, employees use the Internet for personal purposes spending traffic in their own interests. Thus, they increase the company’s costs of using the Internet. Internet control should be installed in the office retaining access to certain resources and time spent there, counting and limiting traffic for each user. If you still use phone calls then optimize your spends there. Companies that do not keep track of long distance and international calls overpay for calls made by their employees for personal purposes. When a company starts registering outgoing long-distance and international calls of employees by date, time and purpose, it sees that there are a lot of personal calls in their total number. To reduce communication costs, it is necessary to establish separate accounting for long-distance and international calls for business and personal purposes, using their detailing, and to keep the cost of personal calls from the employee’s salary (it is possible that the employee reimburses the cost of the negotiations himself). It should be remembered that personal calls are not accepted for profit tax purposes.
Use new technologies
We are not cavemen, so do not be afraid of changes. Use technological advancement to cut expenses. For instance, utilize E-mail instead of usual mail and digitalize everything you can. Video conferencing instead of travelling will not only reduce CO2 emission but also save you plenty of money (especially considering that travelling is partially limited due to pandemic restrictions). Offer your employees an option to telecommute using remote access and communication channels to stay connected. Install apps that are able to automate some processes to speed up your work while multiple communication tools will assist with team interaction. A lot of applications have free plans or trial periods which mean you can choose the best variant without spending money.
You must remember that you have always a right to choose the best provider of services or supplier of goods. Be rational and ready to negotiate whether about office space or pencils` price. Do not settle for the first option found, try to search for more fruitful conditions which meet your needs.
Marketing and advertising
Use tested marketing channels
When it comes to cutting expenses on marketing the first step is to cut costs on channels that you haven’t tested. For example, before investing in social networks, it is better to study the channels used by competitors, determine the purpose of maintaining social networks and create a strategy with a unique offer (not just talk about the product, but publish customer cases and conduct joint advertising contests). It is better to first test the selected channels within a certain budget, and then select the most effective ones. It is worth auditing contextual advertising campaigns. For example, keywords and negative keywords should be regularly updated, because the requests and needs of buyers change every day and are formulated in different ways.
Leave the advertisement that works
To do this, act in the following way: determine whether advertising brings additional income in excess of its costs. In other words, collect data confirming that an increase in advertising costs is combined with an increase in sales. Revise your advertising budget, leaving only working advertising (for example, focus on confirmed data that new customers have been attracted with the help of advertising). When a company uses several channels to attract customers at the same time (online advertising, outdoor advertising, television), it is difficult to attribute new sales or deals to a specific source and determine which advertising works best. To do this, you can use the capabilities of dynamic call tracking.
Call tracking is a tool that allows you to track the sources of calls to a company. Its main task is to analyze the return on advertising investments. Call tracking service is needed to count calls from each advertising channel. A person visits the site with an advertisement from a specific source and sees the phone number assigned to this source or visitor. After the call, the system identifies the source by a unique phone number and puts a plus on a specific channel – “the request came from here”. Call tracking replaced the work of managers who recorded the sources of calls to the database from the words of buyers. Modern dynamic call tracking will record each call itself, determine the source before the keyword, enter the user’s device, operating system and other data into the database, and also know for sure whether the person has called before.
Analyze your promotion
Discounts and marketing promotions deserve special attention. It is necessary to clearly understand whether the expenses for promotion are covered by the income from the attracted clients. Check your own discount but also discuss with your ad agency chance to renegotiate the contract in your favor. Otherwise, you can look for an advertising agency ready to offer more favorable terms. Explore the possibility of paying for advertising services by barter. Traditional methods of advertisement may be too expensive. Get familiar with Facebook and Google AdWords (or other alternatives) to promote your product online. They offer much more precise targeting (considering age, gender, location, interests) and thus make your advertisement more effective.
Give a shot to joint promotions and barter
To reduce business costs, you can unite and hold joint promotions, for example, with neighbors in a shopping or business center. This scheme is especially suitable for topically related businesses. For example, a photo studio and a beauty salon can order one large advertising banner on the facade of their building. A cafe and a tableware store can unite for a master class on making pies. Thus, you not only significantly save your marketing budget, but also expand your audience of buyers. Barter is an exchange service or goods and also a profitable option for cooperation and budget savings. For example, there is a known case when a radio station in a large city provided advertising time on the air to an improvement and renovation firm in exchange for their services. The benefits to both parties are obvious: the office of the radio station – repairs, the above-mentioned company – advertising on the air. This scheme also has its drawbacks: when concluding barter transactions, the question of taxes and other payments becomes acute.
Previously, it was believed that reducing personnel costs is required only in “difficult times”, but today cost optimization should become a regular process. This is a condition for the survival of a business in a highly competitive environment. Obviously, there is no single correct solution for everyone: the choice of one or another alternative depends on the specific situation, moreover, like everything in life, the result from reducing costs can be both positive and negative. Therefore, the key task of the company in the context of market instability is to choose the optimal approach at the right time, as well as reject those methods that can do more harm than good.
Strategic management of a company requires a holistic assessment of its human resources, which include both permanent employees and contracted freelancers, consultants, third-party service providers (outsourcing companies), and strategic business partners and interns. By reducing personnel costs, many companies pursue a single goal: short-term cash flow growth. Since the long-term consequences of such decisions are rarely analyzed (moreover, they are estimated in monetary terms), the strategic development of the company can be slowed down.
It is not always profitable for a small business to hire many full-time employees, which means that some of the tasks can be outsourced. The main rule is to leave inside only the specialized processes in which the company specializes, and entrust the rest to external specialists. Accountants, system administrator, recruiters, lawyers, PR managers – all these people are easy to hire through special outsourcing companies. Here is the rule. Freelancers should be entrusted with one-time tasks, for this they draw up a contract. To solve complex and long-term tasks, such as bookkeeping or technical support of the site, it is better to choose a special profile company: this will reduce the cost of services and increase reliability and quality, because firms can afford to maintain professional employees on a permanent basis. Offer remote work to your regular employees. Choose hybrid office if you need your employees onsite from time to time.
You can ditch the office or outsource according to your preferences. Researchers estimate that outsourcing will cut down 20 – 30% of business expenses. Another survey shows that if employees work from home half of the time, the company will save annually up to $ 11,000 per employee considering utility bills, cleaning the office and buying consumables. Additionally, telecommuters are less likely to take unscheduled days off and sick leaves. At the same time, productivity of telecommuters increases by 47%, which increases the company’s profit.
Motivate the best, say “bye” to the rest
It is important to ensure that your team is made up of responsible and motivated people who will be interested in working for your company and who will share your goals. Reward and appreciate those who bring the most profit. Give bonuses to proactive cadres. Expenses that you expect to increase the loyalty of your subordinates can be replaced by non-material incentives, such as allowing one day to work from home, which the team will appreciate more than free meals or small remuneration. It is necessary to assemble a team of like-minded people so that everyone plays their role and feels their importance. Yes, finding and training such employees will take time and money, but these efforts will pay off. If after working with a person for some time, you realize that he does not fit into your team, it is better to part with him by agreement of the parties.
Give a chance to young specialists
Furthermore, it is possible to hire inexperienced but smart and willing people. For example, freshly-graduated students are eager to find a job, while experienced cadres are pickier in salary expectations and much harder to please. But that does not mean you compromise talents to save money. You just need a little time to educate those young specialists to get loyal and productive co-workers. Use interns or volunteers. This way you are able to find the best employees from the pool who have strong desire to perform their duties. Just do not turn into tyrant by exploiting their labor.
Optimize your taxes
Explore the possibility of optimizing your tax burden. We are not talking about gray schemes. It’s just that aspiring entrepreneurs often don’t know which tax regime is more beneficial for them. Small businesses during the coronavirus in most cases have difficulty paying taxes. What can an entrepreneur do to reduce these expenses? Consider switching to a different taxation system or a different legal form, if possible. Use a tax deferral if you work in an area that has been recognized as the most affected. But remember: a deferral is not a tax abolition, you still have to pay it later.
Restructure your loans
Loans restructuration is a vital step during crisis. Loan instalments may severely influence monthly income of the company. Talk to the bank which provides your services and ask if they can put the payments on pause for a certain period of time or reduce your current instalments. There are ways to optimize spending on financial obligations. They will work if you still have customers and at least minimal sales: only in this situation will banks meet halfway. Additionally, rates and fees may vary in different banks. You can change to the one with better interest rates and general conditions. Agree with the counterparties to whom you owe on the timing of payments, the possibility of deferral, barter and other indulgences.
Optimize working capital
There are ways to release money or close some loans. Agree with suppliers about deferred payments and discounts, and with buyers – about prepayment or shortening the payment period. Check the financial soundness of a company carefully before selling something on a deferred payment basis. Focus on collecting customer receivables. Use stable liabilities: salary arrears to staff, reserve for other upcoming payments – and invest them in current assets that will bring profit in the near future. Conduct an inventory of illiquid stocks: raw materials and other materials, finished goods – and sell them at a discount. Use 80\20 rule. Only 20 % of effort brings 80% of income. Eliminate the rest.
Pay attention to treasury management. Ask for a discount. Always. And be ready to invest money to save them in the long run (e.g., in better technologies or materials, staff education to reduce turnover losses).
Cost saving initiatives in office may also be advantageous for environment. While aiming to downsize your expenses you can make a difference for the ecology. How?
Consume fewer resources
Reassess your consumption to cut your utility bills. To reduce energy costs, you need to reduce the amount of energy consumed. In order to save energy, you can proceed as follows: do not light the rooms in which work is not performed, or supply them with motion sensors. When using motion sensors, the light in the room turns on only when someone enters and turns off when they leave. Replace all the old bulbs with LED lamps which will significantly reduce energy consumption and need to constantly re-buy new bulbs. Same with water bills – use tap with sensors and check the rest of utilities. Probably, you can use alternative energy sources. If so, then you should definitely try it. Solar batteries are not futuristic anymore, many utilize them and gain profit from this.
Create a paperless office
Digitalization is great because of many reasons but it also helps to leave obligatory hard copies behind. Today all the data can be stored in the cloud-based storages which provide instant and controlled access to employees in any part of the world. Even if you are not worried about rainforests reduction of paper used may be beneficial for your business. Just calculate how much you spend annually on printing your documents and storing them physically. By the way, aren`t you just tired of the shelves bending under the weight of dusty folders? Switch to digital versions and your productivity will also grow.
Apply 5 R rule
Zero-waste movement is getting stronger now and businesses may adopt their methods. The rule is as follows: refuse, reduce, reuse, recycle, rot. And when “rotting” aka composting is merely possible in office (at least for the most businesses), the rest is pretty achievable. Basically, these advices partly sum up steps mentioned before but let`s clarify them a little. Refusing everything what seems “extra” is not only for radical minimalists but for rational managers, too. Do not buy anything new if your business do not really requires it. Are you sure you need all the equipment or such a big building? Be mindful and consider what really matters in regards to your business. Sometimes essentials are just everything you need so reduce the amount of components used at office. Reuse all that still functions well, buy used equipment and try to avoid disposable items. Waste-free production does not exist, so recycle. It is possible to cut payments for waste collection and disposal by sorting waste. For example, the removal of solid waste is more expensive than the removal of industrial or construction waste.
Other ways to save money
Focus on productivity
For some companies if they want to implement cost cutting measures in office the best solution is actually to optimize productivity. In fact, final results of the work are the main factor of the success. Some processes can be automated which means you will not be obliged to pay other people for routine tasks. Maybe, it is a great idea to finally start using apps to assist you in this. Time and productivity trackers and task management software assist in monitoring the daily efficiency. They show current progress of the assignment and allow having individual and group dialogues. It simplifies managers` life and creates necessary transparency at the workplace. Automate some of the processes using online services. Over the next two decades, half of all work processes in the world will be automated. This will significantly increase the efficiency of hundreds of companies and eliminate the need to hire new employees. But it’s not worth waiting for this to happen: the tools to start digitalizing a business are already available. Ask employees to explore programs that can make their job easier. Subscribe them for a trial period, and then measure how productivity has changed.
Check your business partners
As impressive as the product is, a company cannot conquer the world if it does not optimize its purchasing, manufacturing and other processes. One way to be effective is to audit and reduce current partners, suppliers, and key business costs getting rid of those which do seem to be unbeneficial. You can also become a member of the business loyalty program and receive bonuses and discounts. Audit your suppliers and contractors regularly. To study the market and find new suppliers, you can post procurement offers on specialized forums. Each industry has its own online resources where you can search for the most suitable offers.
Reject unprofitable projects
There are projects that are done for the image. Thus, you have a well-known brand in your portfolio and a plus to the reputation of your business. Such projects are often done at a loss. Think about whether they are so important to you in a difficult period when you practice cost saving in office. It is also worthwhile to re-evaluate all projects separately and try to identify unprofitable ones. For example, if you make bulk purchases for several projects at once, you have deferred payments or payment for your work is delayed. To analyze the profitability of individual projects or areas of activity, you can use special programs for financial and management accounting.
Monitor transport expenses
Economy cut is possible by reducing transportation costs. Reduction of logistics and freight costs is vital for businesses. Recommendations for fulfill this: determine when it is profitable to attract your own vehicles and hired ones. Hired transport is more expedient to use when delivering large volumes of goods, when your own fleet of cars is not enough and you need to hire carriers. There are specialized Internet resources related to cargo transportation, so you can find a suitable carrier without problems. Additionally, change your transportation mode, consolidate shipments, and think about warehouse. Here it is important to schedule transportation properly and provide enough control.
Remember not to
If the measures to optimize costs are carried out incorrectly, then you can reduce profits, spoil the company’s image and lose customers. Here’s what you definitely should avoid:
Careless savings on employees. Downsizing, lower wages, reduced corporate and training costs are bad for the company. The remaining employees, as a rule, begin to look for additional income and devote less time to basic business. And their productivity drops even more. The end result of ill-conceived action is that most “labor-saving” strategies have only a short-term effect and tend to fail in the long term. Indeed, many of them have a negative impact on the development of the company, since the cost of subsequent restoration exceeds the savings. Managing cash flow will be difficult even as the economic situation begins to improve, so the need for alternative, more efficient and smarter cost savings will always remain on the agenda.
Reduction in marketing costs without analysis. Often companies cut marketing costs by proportionally reducing budgets for all channels. But this leads to the fact that there are even fewer customers, profits are reduced, and the budget has to be reduced again. But you can do it in a smart way: find out through which channels the least number of customers come, and cut costs only for them. They do this by conducting customer surveys, connecting call tracking, tracking the effectiveness of the sales funnel using end-to-end analytics services. As a result, marketing costs will decrease, but its effectiveness will not. If you also suspect that some of the money is spent on ineffective advertising, but cannot find these channels, then order an audit from specialists. They will analyze the activities of your company on 50 different indicators and help to identify problematic points.
Deterioration in the quality of a product or service. If the quality of your product gets worse, many people will immediately know about it as unsatisfied clients will share their negative experience, and you will lose customers. So this step is something you need to avoid at all costs (no pun intended).
During expenses optimization and the corresponding costs reduction, a systematic approach becomes the main condition. You need to analyze all the areas of your business to find the best solution. Of course, cost reductions can and should be accompanied by increased efficiency. An active, flexible office means fewer missed days due to sickness, stress and noise, and more opportunities to work with concentration. “Smart” interior is a good reputation in the market, allowing you to recruit the best candidates with fewer expenses. Check items of expenditure and ditch unnecessary ones. Try to apply modern practices and office cost reduction ideas we have mentioned in his article.
Avoid too strict limitations for your personnel, as it can be dangerous for a long term success. Plan all your activities in advance, but stay flexible and ready to adapt. Conduct a detailed research or ask expert for this. Reassess your needs and prioritize what is right and genuinely matters for your company.
When developing cost cutting measures in office, you need to take into account the goals of reducing costs, the specifics of the organization of business and sales markets. The main thing for any company is not how much to spend, but how to spend most efficiently. And while saving your money do not forget to save your name.