If you’re the owner of a startup or small business, having a cost-conscious mindset is understandable, since you’re likely to be on a shoestring budget and any extra expenses could drive your business into the ground.
However, taking your cost-control mantra too seriously by applying it everywhere in your business without seeing the larger picture could jeopardise the productivity of your company.
The British saying “penny wise, pound foolish” applies to owners who cut corners on small costs and end up paying dearly on lost efficiency. So what needs to be done to achieve a balance between cost cutting and spending to maximise your output?
1. Which aspects could you cut costs from?
Everyone wants a nice office in a prime location, but such luxury brings significant fixed overheads. Instead, consider a shared office where you rent space or shift your office away from the CBD to bring down rental costs.
The other alternative is to invest in a virtual work environment. You can enable your workers to function from anywhere and at any time by giving them tablets and smartphones. This will reduce the need for office space.
You could also use second-hand furniture. At this stage of your business, it’s not necessary to pour money into brand-new furniture for your office. You can easily save money by getting functional used furniture from Gumtree, eBay, etc.
It’s true that you can network and gain valuable information when attending conferences, but there are times when the payoff might not justify the costs. Instead, consider connecting with industry leaders on LinkedIn or taking them out for a drink or meal. This allows them to share information that is more specific to your needs.
Transition to cloud computing
A major plus of moving to the cloud is scalability, and you are only charged based on how much you use. Therefore, you don’t need to struggle with any annual or upfront fixed costs.
2. What might not be wise to cut from
Companies can make the mistake of lowering their expectations if they find it difficult to afford top performers. One way to go overcome this is to hire capable staff with less work experience. It can be a win-win situation – they are looking for entry-level positions, and you save money on salaries.
In case you do need people with significant experience, you can have them as external consultants and pay them on a project-by-project basis.
In the initial stages of your business, you might find it economical to manage all admin and accounting tasks by yourself. But once your business starts progressing to the next level, these tasks will increasingly eat into your valuable time.
Trying to save money by managing these tasks in-house – such as company admin, basic accounting/financial duties – could significantly drain your productivity. By outsourcing this to software and productivity tools, it frees up time to focus on more business-related issues.
You can also consider hiring interns at very reasonable salaries to assist with menial tasks.
When considering cost-cutting, ask yourself whether it will be detrimental to the business or boost efficiency.
To read more articles related to Small Business Finance topics, visit here.