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Now isn’t the time for small businesses to be carrying extra costs. Here's how to reduce spending in the workplace with some effective cost-cutting techniques.
The COVID-19 (coronavirus) pandemic has caused unprecedented disruption to our lives and livelihoods. The global economy is expected to shrink by three per cent this year and a recession could be on the horizon for Australia. In such challenging times, it is essential for business owners to look at cost-cutting techniques. For many small businesses, understanding how to reduce costs in the workplace could mean the difference between riding out the storm and shuttering the doors forever.
The first step for small businesses is to go over your profit and loss statement from the last 12 months. Ask yourself whether spending on a certain item is currently delivering a return on investment. If it’s not, consider cost cutting. There will almost undoubtedly be areas where non-essential costs can be reduced, says Jacob Aldridge, a Brisbane-based business advisor and the host of the podcast “Don’t Waste a Good Recession”.
“I think it's possible for almost every business to find some fat to trim,” he says. “When things are going along well, as they were for most businesses last year, decisions are made without fully thinking them through.”
A common example is failing to review supplier prices. It’s worth putting in the time to research whether better deals are available, or to ask your existing supplier if they can offer a better rate.
“There is a temptation to just stick with the supplier you have. We know we're paying too much, but we don't really want to have to make that phone call,” says Aldridge.
But, the worst a supplier can do is say no – and if they're still providing great value, then there is no reason to end the relationship. “You might be surprised how many suppliers are saying that their costs have been reduced and that they're happy to pass those discounts on to you,” says Aldridge.
Paid marketing can be a drain on costs, so it is worth considering the alternatives. Use Google Analytics to find out where most of your business’s website visits are coming from, as it may be worth cutting out costly pay-per-click ads. Try writing a few social media posts to determine if it’s something you could realistically take on.
Email is another effective and low-cost marketing solution. A newsletter is a great way to build rapport with customers, advertise deals on products and services and make sure that your business stays front of mind.
“Deciding that you’re not going to spend money on a specific marketing channel doesn't mean you're never going to spend it again,” says Aldridge. “It just means that you're making a decision that you will review in the next quarter, or whenever it is that your business starts moving forward again.”
While now may not be a practical time to move business premises, Aldridge believes that when the stay-home orders are lifted, many staff will continue to work from home and that smaller premises may become more suitable.
“If you're in a long-term lease, now is a great time to negotiate changing the terms of that lease. And if you aren't on an active lease and your landlord won’t come to the party, then the opportunities over the next six-to-12 months are going to be worth looking at,” says Aldridge.
As for your digital real estate, it also pays to reassess your needs. Are you paying for extra web hosting services like SMS notifications? If it’s not providing a return on investment, it may be time to request a downgrade and cut costs.
One of the hardest ways to cut costs is by reducing your headcount. Consider whether there may be better alternatives for your business, says Aldridge, including government support packages. “I'm encouraging my clients to look at reducing their own salaries first. And consider options like everybody working three or four days a week, as opposed to losing staff.” Unfortunately, letting people go may be unavoidable to ensure the long-term future of your business. If that’s the case, make sure to get expert legal advice first.
Cutting costs can be a difficult exercise – but the worst thing to do is nothing at all, says Aldridge. “Many business owners give into their fear and run scared. They will spend the next 18 months sitting on their hands, not cutting costs efficiently and essentially not moving their businesses forward. If you can keep investing in the right areas, you will come out the other side ahead of your competition.”