At some point or another, a business may run into financial troubles requiring some form of intervention to minimize the damage done and stay afloat. These measures can vary depending on the specific situation, ranging from minor, incremental changes to sweeping, foundational alterations.
When times get tough and there is a financial downturn in your company’s profits, knowing ways to cut costs in your business can prove invaluable and may mean the difference between operations running smoothly and mass layoffs or closure occurring.
The first area in your company’s spending habits that should be curbed is spending on non-essential supplies, renovations, or hiring. If your business was planning on replacing old equipment or deciding on a new look for the office or business space, those plans need to be the first to go if they do not increase profits or decrease operation costs.
Renovations That Can Decrease Long-Term Costs
While many renovations are expensive and may only produce results that improve the aesthetics of your business, there is a way that renovations can lower costs if your company is in a position to spend the money. Lighting is always a necessity in any workspace; there’s no getting around that in most cases. Many businesses still use older light bulbs and fixtures, but switching to LED commercial light fixtures can be a boon to companies looking to reduce long-term costs.
Decrease Monthly Electric Bill
Installing new LED lights can be a quick and relatively inexpensive way to reduce monthly electric costs significantly. Your lights need to burn during working hours and even during hours when you are closed if business demands it. LEDs offer smooth and even lighting for a fraction of the power consumption as opposed to incandescent or fluorescent lights.
There may be times that you committed to a renovation project when your company’s financials were in better standing. Backing out of contract agreements can have legal ramifications that can be the final straw for your business’s survival. However, going through with the commitment may also lead to financial disaster. You will need to renegotiate with the contracting company to cancel the plans, lower the costs, or pay a buyout fee and cut your losses.
Suspend the Hiring Process
Taking on new hires when your company is not doing well financially can put unnecessary strain on your business and is also unfair to the individuals you are hiring. Your payroll may not be able to afford the extra expense of onboarding employees, and those you hire will be ignorant of the state of things.
Be More Cautious With Spending
When you have eliminated the expenses that your company can go without and still survive, you need to focus on what you actually need to spend money on to continue operations. There may need to be a large-scale shift in where you obtain your necessary materials; this can mean finding a place that will sell you what you need for a lower price. If your current supplier knows that you are facing financial troubles, they may lower their prices in order to keep your business.
Shop Around for Better Deals
This may not be a viable option if your company is in serious danger of closing but waiting to settle on a supplier by shopping around and finding a better price can be beneficial. If you find a seller who can provide a lower cost to your business’s materials, you can discuss that with your current or different providers. Distributors may begin lowering prices to compete with one another in order to secure your business. Holding out for a better deal may be best if your company has the time to spare.
Consider Your Location Costs
The physical area where you have set up your business can have a great effect on your financials due to renting or leasing costs. These costs can vary greatly based on where you are; some towns and cities have far more expensive real estate than others. If you find that you can no longer afford your lease, you first need to renegotiate the price with your landlord.
Think About Moving Locations
Packing up shop and moving to a new location can have several drawbacks: the cost of moving, shutting down business for a few days, potentially losing customers because they can no longer find you. But despite these disadvantages, the most appealing factor when it comes to changing locations for your business is that you can find cheaper areas that may cost significantly less to rent.
Sublet Your Unused Space
If you decide to downsize your operations, you may be able to profit from the space that you no longer use. You will need to know the intricacies of your lease to know if you are allowed to do so but subletting your space to others for their own purposes can net you money that you otherwise would not have been earning. Space is a valuable commodity, and there are others who will gladly pay to use the space that you’re not using.
Decrease Employee Benefits
These actions, while they can be taken to reduce operation costs, should only be used in dire circumstances. If your business performance decreases to the point that your employees are feeling the strain, implementing these measures may only drive them to look for opportunities elsewhere. But sometimes, it can be better to reduce benefits rather than outright lay off everyone in the company.
Reduce Pay of Highest Earners
If you need to reduce payroll, the first place you should do so is at the top with the owners and managers; they are the highest earners in the company and can take the financial hit of decreasing their pay. This will hold off on payroll deductions for the employees at large. Additionally, it may engender trust between the workers and management. It can show that you have your employees’ best interests in mind and are determined to lessen the financial blow on them as much as possible, which can result in higher company morale.
What Can Your Company Realistically Take?
You need to take stock of the financial state of your company and determine what you can and cannot realistically do to reduce costs and save money for your business. Some measures may completely alienate your employees, convincing them to quit and search for work elsewhere, while other actions may put a greater financial strain on your business. Know the specific issues within your company and what it can handle to stay in business.