Little things mean a lot, and relatively small expenses can add up to a significant amount of money your organization is wasting over time. By cutting costs, you can enhance your bottom line. Here are 10 ideas to reduce expenses:
1. Improve cash flow. If your business is seasonal, ask your largest vendors if you can stock up now but not pay until customers buy. Also, inquire about renegotiating leases so you only pay in those 9 or 10 months of the year when you have the most sales.
2. Investigate new products. For the next few weeks, have your customer service personnel keep a list of products that customers would buy from you if you stocked them. Then, calculate how much revenue you would earn by stocking the three most requested items.
3. Reduce waste. Ask your production manager to estimate how much was spent in the last six months on making up lost time, correcting errors, dealing with injuries, and redoing existing work. Investigate as many of these incidents as possible. Identify trends, bad practices, and problem employees. Address these issues fairly and methodically.
4. Do some spring cleaning. Ask your managers to give you a list of equipment that’s mostly idle. Calculate how much you would save on insurance, carrying charges, property taxes, income taxes, maintenance, and storage space by getting rid of it.
5. Solicit money-making ideas. Ask everyone who performs day-to-day work in your business — including delivery people, administrative assistants, customer service personnel, janitors, and other employees — to write down five ways your organization can become more profitable. You might be surprised by the great ideas you receive.
6. Renew old acquaintances. Send letters or e-mail messages to customers who discontinued doing business with your organization. Thank them for their past business and ask them to come back. See how many reinstate their accounts.
7. Reassess priorities. Ask your billing department to rank your customers by the dollars they spend. Then, calculate how much more money you’d make by transferring your time and money from servicing the lowest producing 80% to “wowing” the top 20%.
8. Evaluate billing practices. If you currently bill customers a fixed amount every month, calculate how much you’d save in monthly mailing costs and increased cash flow by billing in advance every two months.
9. Stop expenses from falling through the cracks. Calculate how much you spent last year on products or services that were delivered to customers but not ordered. Set up a system to get customers’ approval in advance and avoid this wasted expense. Then, see how much you spent last year in overnight priority packages and shipping. Calculate how much you could have saved if just 75% of those packages weren’t sent at the highest shipping rates.
10. Cut back on overtime. Ask your managers to give you a list of employees who were paid overtime last year. Look for trends and signs of excessive overtime use. Initiate a bonus to departments who get their work done on time without incurring any expensive overtime.
Think of what you can do with the savings from just these 10 ideas. Doing so should motivate you to give these a try or think of other ideas more suitable to the size and purpose of your business. Your CPA is a great resource for assessing the true feasibility and profit potential of any bottom-line-building idea.
For any questions related to this article, please contact Jennie McMaster at jmcmaster@vlcpa.com or 800.887.0437.
