When your business is going uphill and customers are hard to find and you’re having a hard time paying your bills, it’s time to tighten your belt. Many businesses pass through this stage and it does cause quite some concern, but you will have to take up some cost-cutting measures till your business comes around.
The first thing that you ought to do is to involve your staff – take them into your confidence and explain the position to them. Tell them that times are tough and ask their ideas for the cost-cutting process. Get all the staff over to your side and you can be sure that they will come out with some very good ideas and strategies.
By recognizing the problem in the bud, small companies can start taking preventive measures from a very early stage. If companies ignore the warning sign, it is likely that they would land in trouble and if not curbed will lead to closure of the company.
Financial experts suggest using financial ratios which can be used as early warning indicators when a business should start reducing costs. For instance, one such indicator is the gross profit ratio which tells us the ratio of profits to total sales as compared to the industry, which would indicate if their costs are too high or their prices too low.
Here are a few tips for you to follow when you start implementing your cost-cutting measures:
- You could consider renting your unused office space and equipment to some one who may need it. Not only would you be making use of unused space, but you would also be generating some income.
- Do not go in for any new furniture, but consider refurbishing them.
- Review the expenditure on utilities such as electricity and telephones and see where you can do some pruning. Save on power by turning off all necessary gadgets and appliances.
- You could also think of postponing painting your office, buying new furniture or equipment, or hiring additional staff.
- Save on stationery by going green. Do away with all paper statements, and where unavoidable use both sides of the paper.
- Cut down on your staff travel expenditure and do away with all unnecessary travel.
- If things are really bad, you could close the office for one extra day in a week.
- Negotiate with your banker for charging lower commissions and charges.
- Stop staff and client entertainment. You could also think of cutting down staff perks.
- In critical circumstances, you could even think of pay cuts for highly paid employees.
- Staff absenteeism can be your major hidden costs. Adopt strategies to minimise staff absenteeism.
- You could also examine to see if any of your staff are agreeable to reduced working hours in exchange for reduced salaries.
- When times are tough, stop all unnecessary buying. You will be surprised to see how your suppliers would be willing to bring down prices to ensure that you keep buying from them.
- Sell everything that you do not need; and if at a later date you do need it, you could always rent it.
When you adopt these strategies, you will discover that you would have reduced your expenses substantially and things wouldn’t be difficult much longer. It will now be downhill all the way.
When your business is going uphill and customers are hard to find and you’re having a hard time paying your bills, it’s time to tighten your belt. Many businesses pass through this way and it does cause quite some concern, but you will have to take up some cost-cutting measures till your business comes around. By recognizing the problem in the bud, small companies can start taking preventive measures from a very early stage. If companies ignore the warning sign, it is likely that they will land in trouble and if not curbed will lead to closure of the company.