Managing cash flow is more important than ever before.
Regardless of the type of business you run, you likely look at your expenses regularly to ensure your business investments are paying back. Now, more than ever, companies are looking for significant business savings; ways to economize and free-up dollars for the most critical expenses.
Navigating through the COVID-19 pandemic may require disaster relief. But that alone will not help you grow your company over time. Even if you get an infusion of much-needed cash, you must also figure out how to save your business money, so that your cash lasts longer.
You’re not alone. Business owners around the country are tightening their belts and working to generate business savings wherever possible. Business spending is expected to fall 10 to 20% this year.
Before you take a cleaver and start eliminating expenses, there are a few things you must consider.
Business Savings Starts with Process
Evaluating expenses involves a team of leaders who can look objectively and creatively at their company’s balance sheet and make tough decisions.
You’ll want to cut into fat rather than muscle, so cutting costs needs to be deliberate, collaborative, and driven by fact rather than gut.
Step 1. Choose Your Savings Team Wisely
Engage an outside consultant -- an accountant, business coach, or another objective third party to help you review your balance sheet and spending plans.
Establish clear ground rules for the review and implementation process. For example:
- - Avoid turf wars. Employees and vendors may become territorial about their individual budgets and plans. Leaders should be encouraged to make decisions that are best for the business as a whole rather than their own agendas.
- - Eliminate sacred cows. “We’ve always done things this way,” is a common perspective. But only by opening your mind to innovation and new approaches can you make tough decisions.
- - Make sure you’re using current and accurate data. The process needs to start with simple and reliable reporting that can be applied to making new financial projections.
Step 2. Establish a Baseline
Before you begin evaluating expense line items, generate an accurate and easy-to-understand spending report. Here’s an overview of how businesses currently spend, but every industry is unique and your stage of development will also dictate where your dollars are going.
Whether you use Quickbooks or a more sophisticated accounting system, create reports that detail your spending. Look back three years to spot any trends.
Focus on the big line items, but the smaller ones can add up as well. Subscriptions, office supplies, and entertainment are among those expenses that can amount to thousands of dollars over time.
Unlocking the Keys to Savings
Four areas contain the greatest opportunities for business savings. Look at each of them from a high level and in detail.
Savings Area #1: People
Talent is the lifeblood of an organization and payroll can account for 15 to 30%of gross revenue for most businesses. It can be as much as 50 percent for labor-intensive service industries. But salaries can just be the tip of the iceberg. Benefits and perks can add more to your human resources expenses.
Now is a great time to ensure you have the right professionals within your organization. Conduct an honest and objective talent assessment to ensure the team you have today can really lead you into tomorrow. Tough times require people who are willing to work hard, come up with creative solutions, and commit to the long-term success of your business.
You can streamline by:
- - Consolidating job functions
- - Automating routine tasks. The short-term investment in technology can pay back in the long run
- - Utilizing outsourced talent rather than staff
As you make decisions to consolidate or eliminate positions, consult your HR professional or labor attorney to make sure you’re not opening yourself to liability. Above all, make sure that the people you keep fully understand why and how you’ve made difficult decisions and acknowledge that change will create some level of uncertainty and stress.
Savings Area #2: Technology
IT spending is on the decline, but many companies have discovered that automation can ultimately create efficiencies, enable businesses to serve their customers better, and eliminate redundant or unnecessary roles.
Technology doesn’t just apply to computers and software. Lighting, heating, and cooling systems all use automation to save money on usage. In fact, you can save as much as 60% in lighting alone, simply by switching to LED lights.
Know what you’re buying. Be sure the technologies you invest in will streamline your company’s operations. As you speak to vendors or your IT experts, drill down on tough questions, speak to similar businesses that have invested in those solutions, and ultimately commit to what you buy. Some automation systems will not pay back immediately and unless you commit to making them work, you won’t enjoy the benefits.
Savings Area #3: Marketing and Sales
Cutting expenses in this category can be a slippery slope. Marketing during a recession is essential to long-term survival and prosperity. Know where and how you’re spending every marketing dollar and shift your spending to those segments and tactics that will deliver the greatest return on investment.
Marketing is an area where a third-party advisor or media planner can be invaluable. You can get a media-agnostic recommendation on how to invest your precious marketing dollars and benefit from other companies’ best practices.
If you have a sales team, make sure they have the training and facts they need to reach and engage prospects. Conversational intelligence automation can help you understand where you’re losing sales and enable you to better coach a team.
Do not scrimp on expenses that are visible to your current customers. Acquiring new customers is more costly than keeping your current ones happy, and dissatisfied buyers can taint your reputation. When times are tough, service matters more than ever.
Savings Area #4: The Workplace
From rent to furniture to energy usage, your place(s) of business is a key part of your success. Having the right environment can attract new customers and help you attract talent. Some businesses are renegotiating leases or consolidating locations. But energy usage is an often-overlooked area for cost savings, It can comprise as much as 35 percent of a business’ expense.
Lighting is a critical part of the energy equation. Businesses that have invested in LED lighting, for example, have seen up to 60% savings, without any up-front investment.
Make Smart Business Purchases
The lighting example proves that businesses don’t necessarily need to invest upfront in order to improve their operations.
Many suppliers are offering creative cash flow incentives to encourage companies to adopt new ways of doing business. Review your current contracts, speak to experts in specific industries, and discover how you can invest in improvements without a cash outlay.
Plan well. Involve the right team. And look at every area of spending. With this approach, you’ll not only survive downturns but also wind up with a leaner and brighter organization for years to come.
Learn how LED lighting can help you enjoy dramatic business savings -- and a more sustainable operation. Check out our guide: Everything You Need to Know About LED Lighting for Your Business.