OPERATING SMARTER

In these tough economic times, businesses are looking to reduce costs as a means of staying afloat. Rather than trimming the edges with insignificant measures, it would be wise to focus on the big pictures.

There are many avenues by which significant cost savings can be enjoyed, without compromising customer service or revenue.

The first place to focus is your suppliers. Try to negotiate better prices, or discounts for bulk purchases. It is likely that they too are struggling and will not want to lose your business to competitors. Savings could be further increased by negotiating early payment discount arrangements.

Early payment arrangements could also be offered to your clients, at a lower rate than those you receive, thereby improving your cashflow position.

If your business imports from overseas, foreign exchange risk will have a large impact. Consider entering into forward exchange contracts to protect against this risk. Also, try negotiating better terms on freight costs.

Labour costs are the next major area which should be examined. Be careful that cost cutting in this area does not weaken the business. Staffing structures should be care-fully reviewed. Where it is found that roles are no longer required, redundancy may be considered, however this option may involve a large cash outlay for the settlement of leave entitlements.

Also consider outsourcing work where a permanent staff member is not justified. Similarly, if a current staff member possesses skills that are currently outsourced, consider utilising those skills instead.

Another cost saving opportunity exists in the area of finance costs. Consider moving from a running overdraft to medium or long-term debt which may attract a lower rate of interest.

Control discretionary spending such as entertainment allowances, ensuring they are being spent effectively. Review the effectiveness of marketing expenditure, and perhaps seek out alternatives.

Carefully review each line of your profit and loss statement, for further potential cost savings. Also consider benchmarking your business against industry averages.

By undertaking an intelligent and prudent cost review, you can improve efficiencies and strengthen your business for the long term.