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Top 4 Business Cost Saving Strategies
One of the most important goals for every business is to be profitable. Businesses not only need to grow in sales revenue, but also control or cut costs in order to reach their financial objective. Cost saving strategies will help businesses evaluate current expenditures and find ways to cut costs. When businesses incorporate cost saving strategies, they can gain a competitive cost advantage in the market and even generate more growth opportunities. Below are the four most effective and commonly used cost saving strategies.
Prepare a Budget
Budgeting is the first step in financial planning. It will help you figure our how much money you have, how much you need to spend, and how much you need to bring in to meet business goals. It is better to find out that you can't afford something before you commit to spending on it. Businesses use budgets as a way to put a cap on their spending allowance, so that they can monitor financial activity and make sure they aren’t spending more than they should. Budgets are most effective when they are reviewed regularly to ensure that the company is following the plan. If you're missing the targets set out in your budget, you can use the budget to figure out how you can reduce expenses.
Lean is a business philosophy of doing more with less, it strives to provide exactly what your customers and clients want with as little waste as possible. According to the Lean Enterprise Institute, anything that does not add or create value to your operation can be considered wasteful. Operating a lean business will save you money by reducing overhead costs, eliminating needless expenses and helping your company operate more efficiently with less labor and materials.
Companies purchase goods or services from other companies. Often companies use multiple suppliers that provide the same or very similar goods and services. This makes it hard to drive down the unit purchasing cost with each supplier due to low volume. Reducing the number of suppliers sends more purchasing volume and dollars to fewer suppliers. This will provide greater leverage for supplier negotiations and lower costs. Another cot saving advantage is that supplier consolidation can reduce administrative costs, which include invoice processing, purchase order processing and accounts payable activities.
Evaluate Spending Options: lease vs. buy
Is it more cost effective to lease or buy a big cost item? The answer depends on your situation. Each business is unique, and the decision to buy or lease business equipment must be made on a case-by-case basis. Leasing can be a good option for businesses who have limited capital or who need equipment that must be upgraded every few years, while purchasing equipment can be a better option for established businesses or for equipment that has a long usable life. So it is important for you to evaluate your business needs carefully. Be sure to factor in tax breaks and resale value when making your calculation