By Ryan Miller, CEO, Keeping Company
Cost cutting can get a bad wrap, but a little creativity and innovation can make the process much less painful, explains CEO of Keeping Company, Ryan Miller.
Do you want to bring your business’ costs under control without sacrificing what makes the business successful? You’re not alone. It’s one of the more common queries we hear from clients.
The dilemma is this: If your business makes cuts to costs which are too deep, it can impact employee and customer satisfaction; costing the business more in employee and customer churn. However, if you don’t cut costs enough, it can embed inefficiencies into the business or even threaten the business’ very viability.
So, how can you get the balance right to optimise your costs effectively?
Align cost cutting to your strategic objectives
If you start any cost cutting exercise by first targeting the line items in the budget which cost the most, you’ve missed a critical step - aligning cost optimisation with the business strategy. If, for example, you can see from your budget that reducing headcount will quickly bring costs down you may be tempted to immediately cut heads. However, without understanding what those people do and how their work contributes to the business strategy, you may end up too under-resourced to achieve your strategic goals.
When developing a cost optimisation plan, start with the business’ overarching strategy and then think about what constitutes a ‘good cost’ versus a ‘bad cost’. What will achieve a return on investment against your strategy and what won’t?
After assessing your strategic goals you may find that optimising headcount is a sound option for your business. Options include leaving vacant positions unfilled, restructuring and consolidating roles where people are underutilised and moving on underperformers.
It’s important to carefully plan for a restructure that will align with what the business is trying to achieve. Consider what expertise will be needed moving forward. Identify your top performing talent and find ways to retain them within the new structure.
Focus on your people
Whether you need to reduce headcount or not, focusing on employee satisfaction is an important component when optimising costs. If you are reducing headcount or making deep cuts, you want to do what you can to retain the talent you have left. Even if you’re not reducing headcount, high employee satisfaction leads to lower employee turnover which will cost the business far less in the long run.
Automate and outsource
One of the most effective ways to improve productivity is to find ways to reduce the time taken or money spent on labour intensive tasks. Ensuring your people are performing optimally and completing work in less time will help a great deal, as will automating tasks using technology or outsourcing tasks to cheaper labour.
Change where you work
Now is the time to consider whether an office move may make sense or whether you could even transition to a partly or fully virtual office. With working from home now normalised thanks to the pandemic, enabling remote work to continue can bring down your rent, energy and other office overheads significantly, while giving you better access to talent.
Review your financing
It’s important to not overlook the costs of financing. Look at whether you can change banks to a more cost effective facility, consolidate any credit cards to one with a lower rate, or make any other changes to reduce fees and improve access to capital.
Avoid late fees and seek out discounts
If you’re regularly paying late fees on loan payments or overdue bills it's a red flag and an unnecessary expense. You may need to get your cash flow under control, or establish a system to automate payments or provide reminders to make payments.
In many cases paying bills early or switching to an annual rather than a monthly fee can secure a discount. If you have the cash flow to pay bills early or upfront this can be a good option.
Trim your expenses
When it comes to reducing your expenses, start with any discretionary costs such as entertainment or gifts. Anything that is non-essential may be able to go or be reduced significantly. Going paperless is a great way to bring down printing and paper costs. Look at ways to make the office more energy efficient. Negotiate supplier contracts or seek out more cost effective alternatives if possible.
There are some costs which you may not want to cut, but can be consolidated to reduce the overall spend. Examples include combining activities or events such as training or celebrations.
Cost cutting need not be a painful process. Approaching cost optimisation strategically and creatively can make the process much more seamless and successful.
About Ryan Miller
Ryan is the founder and CEO of award-winning bookkeeping and accounting firm, Keeping Company. The company empowers business owners by providing bespoke end-to-end accounting and business advisory services which leverage the cloud.
Ryan began his career in Middle Market Advisory at one of the Big 4 accounting firms and has been a Director of public practice firms. Ryan is a fully qualified Chartered Accountant and a member of the Institute for Chartered Accountants Australia and New Zealand. He is also a Registered Tax Agent and holds a Bachelor of Commerce from the University of South Australia.