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If you are a young entrepreneur, the operating costs of your company are most probably a big area of concern. Regardless of how profitable your business is, there is always room for cost savings. More often than not, businesses tend to stall their growth by investing hard earned profits in unnecessary workforce and inventories. Young and inexperienced entrepreneurs are more likely to make these mistakes. That’s why it is important for startups to reduce operating costs wherever possible.
Sourcing cheaper components or bulk procurement, reducing inventory, marketing cost-effectively and relying on freelancers are some of the things that will help cut costs. Here are a few tips for you.
Purchasing or sourcing is one of the most important as well as costly parts of your business. As a result, reducing procurement costs and improving supplier terms will lead to overall business savings. There are several ways to save considerable money in your supply chain. However, the best way to save money is to change your bulk purchasing patterns. Simple math shows that a supplier providing timely delivery for more money is better compared to the one who delivers just five out of ten orders on time and fails to inform you of the delays.
Make sure to discuss your supply terms and conditions with every supplier in detail. This includes purchasing quantity, delivery charges, seasonal discounts, payment processing charges, storage costs, and documentation. Investing in the latest technology may also help you cut down on communication costs and delivery delays. You can also form a bulk purchasing alliance with another business or a trade association.
Most young entrepreneurs don’t have the money for traditional marketing and advertising such as publishing glossy advertisements in magazines, radio, and newspapers. That’s why you need to embrace cost-effective social media marketing for your company. However, you still need to create a marketing budget and stick with it. If you go over-budget, you risk spending your entire rolling capital on marketing alone.
Whether it is Facebook, Twitter or Instagram, make sure to use the social media channels relevant to your marketing goals. You can consult a freelance social media marketing expert to manage the finances and create a marketing plan. There are various cost-effective marketing options such as email marketing, pay per click (PPC), content marketing, and online advertising.
One of the best ways to cut operational costs is to reduce the payroll burden on your company. The cost of hiring full-time employees can quickly turn into a financial burden, particularly for a startup. Once your business has settled and starts expanding, you can think of developing a permanent workforce. However, until then, it is in your best financial interest to work with freelancers and contract employees.
According to a recent survey, the freelance workforce grew from 53 million in 2014 to 55 million in 2016, representing 35 per cent of the U.S. workforce alone. In short, you shouldn’t have any problem finding a qualified freelancer to take over the responsibilities. Apart from offering cost-effective services, freelancers also provide you with work flexibility. So, you can get your projects completed as and when needed. Plus, you don’t need to spend money and time on training, management, and benefit packages among other things.
One of the common methods to keep your operating costs under control is to get rid of unnecessary inventory. Irrespective of how good your supply chain is, you will still end up with some obsolete inventory. You need to track the demand patterns from your customers to avoid ending up with a surplus of unwanted merchandise sitting around in your warehouse.
If you have a large stock of excess raw materials, you can sell these items at a reduced price. Though selling them at a reduced price will take a chunk out of your short-term profit, it will prove more profitable in the long term as your unwanted inventory burden will reduce.
To curb your expenses, you need to prioritise your purchases. Make a list of the various items your business needs such as furniture, computers, business software, office space, and other infrastructure requirements according to the priority. Plus, you need to consider high recurring expenses such as those associated with human resources. You need to take into account projected salaries and wages of your employees.
However, make sure to spend your seed money on urgent priorities only. For example, a customer-oriented business, such as a restaurant, needs a good location and aesthetically pleasing interiors. On the other hand, an e-commerce business needs to spend considerable money on warehousing. That’s why you need to make a list of your business priorities from the beginning.
Once you have prioritised your expenses, you need to figure out the funding part. Just make sure to balance your priorities against your funds. However, prioritizing your expenses is not a one-time process. You will need to evaluate your business goals and the funding periodically to keep yourself from exceeding the budget.
The sole purpose of the technology is to make your life easier, faster, and more efficient. So, why not take advantage of technology to automate some of your business tasks? Various functions including accounting, hosting, marketing, communications, and payroll management, can be automated using business software. Technology not only makes it easier to run a business, but also reduces manpower costs by a mile.
For example, a remotely-operated business can benefit from an online communication platform such as Slack. From tracking your daily conversations to hosting video conferences with your clients across the globe, everything is at the tip of your finger. If you are on a very tight budget, you can look for the open source alternatives to online platforms such as Slack. Additionally, you should look for an all-in-one platform as it will further reduce your operating costs and bring different business processes under one umbrella.
Usually, young entrepreneurs have a lot on their plate. However, no other task is as important as keeping operating costs under control. Your ability to strike the delicate balance between your resources and operating costs can make or break your company. Hopefully, these six tips will help you reduce your operating costs without compromising on the quality of your commercial enterprise. Feel free to add your suggestions and tips in the comments section below.
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