Managing cost in small business
Felix adhekoyibo.|May. 16, 2019
Okechukwu Nnodim, Abuja
To be successful as a small business entrepreneur, you must be able to effectively and efficiently manage the cost of operation of your venture. In its infancy, most business owners know this and agonise almost over every penny spent. But as the business grows, they find themselves no longer able to closely monitor or properly account for every kobo spent.
Experts say it is vital for small business owners to consolidate their purchases and negotiate better pricing as they strive to control the operating cost of their ventures. They note that entrepreneurs should remember that reviewing their key vendors is especially important for companies that have gone through a recent burst of growth. A report by inc.com notes that an entrepreneur should also try and get vendors to compete for his or her businesses.
Entrepreneurs should make sure they know about each other, without rubbing their faces in it, as it is amazing how much better your pricing can be when your vendors feel the hot breath of their competition on their necks. Even if you plan on staying with your current vendor, the very fact that you know and they know that you are getting outside bids will keep their pencils sharp and help ensure you get better pricing.
For a small business owner that already has employees, he should endeavour to train his staff to ask for and get discounts. A short negotiation course on how your team can get discounts from your vendors, plus consistent recognition for team members who do this, pays off handsomely in increased cash flow. This practice alone could reduce your variable expenses by five to 10 per cent, experts say.
Wherever possible, make expenses variable versus fixed. You can change variable expense when you need to, dialing them up or down to suit your cash flow situation and business needs. This flexibility is highly valuable. For example, could you use performance-based compensation versus guaranteed payments? Can you rent, not purchase? Can you lock in an option to review, instead of a contractual obligation?
Entrepreneurs are encouraged to cultivate fiscal discipline as a core company value. Symbolic choices you make or allow as the business owner will find their way into the culture of your company. Sure, you can buy that fancy car or travel first class on your company’s dime, but just know that your team is always watching your example.
Also, experts at businessorg.com say entrepreneurs must never forget that owning and operating a business is expensive. They say while larger businesses often have significant financial backing to counteract these costs, small business owners need to be more resourceful, which is why implementing some effective cost management techniques should keep you afloat even in a tough economy.
A small business owner must also endeavour to minimise overhead. One of the quickest ways to get in over your head financially is with exorbitant overhead costs. This can especially be a problem for brick and mortar businesses paying for rent, energy bills, and inventory space. If overhead costs are eating away your profit, you should brainstorm some ideas to cut back.
With e-commerce sales steadily rising, many businesses are doing away with brick and mortar stores altogether and strictly selling online. Conducting most or all your sales online can dramatically reduce costs while allowing you to reach a larger demographic at the same time.
You should also look into drop shipping if you stick with online sales. Rather than having to pay inventory storage costs, a manufacturer or wholesaler will ship products directly to the consumer. This can lead to substantially higher profit margins while improving efficiency. If you have no choice but to remain brick and mortar, it is smart to condense your suppliers. Getting electricity and gas should minimise utility bills. Also, choosing a single company to provide Internet, telephone, and television can be helpful.
Capitalise on technology, as the right technology can be an entrepreneur’s best friend. Not only does it streamline many business operations, but it levels the playing field and allows small businesses to compete with much larger ones. There are numerous project cost management options you can implement and customise to meet the specific needs of your business.
Customer relationship management software, which revolves around software to streamline and automate areas such as managing contacts, customer service, email, social media, and technical support, is being deployed by businesses nowadays. So by keeping things organised and spotting trends, you ensure that your business is equipped to keep customers happy while increasing productivity.
Also, try and train your employees on efficient time management. Keeping employees on track throughout daily operations is another way to keep down costs. Without efficient time management, team members can easily become sidetracked, and you wind up paying for manpower that is not getting results. That is why it is important to assign each employee appropriate tasks that match their ability. Having a good project manager to carefully monitor the progress of each project should help you get the maximum productivity from each team member. You may even want to use time tracking or a top-rated time management software to make it easier.