How To Reduce Business Costs In Difficult Times

6 minutes reading time

Reduce business costs

For many organisations, March 11th, 2020, was a turning point. Within a short timeframe, numerous companies worldwide had to entirely rethink their way of working. Non-essential factories slowed or shut down, and businesses which previously frowned upon homeworking suddenly ushered people home.

Following the initial shock, businesses around the world have looked to improving their operational efficiency to better help them survive crises and weather future storms.

After implementing some of the most basic cost reduction measures, executives and business owners should take more in-depth steps to further reduce business costs. An expense management system can help do this and increase efficiency to not only maintain profitability, but also ensure a business’ growth.

Review budgets & income

1. Know your costs

Blindly cutting costs could have much deeper and more adverse consequences on a business than intended. In some cases, the remedy may be worse than the malady. Start by taking a good look at your expenses over 6-12 months and identify all variable spend. These costs can include:

  • Donations or other discretionary spend
  • Employee and customer gifts (holiday chocolates, “get well soon” gift baskets, etc.)
  • Optional employee training (non-essential language courses, vocational training that is not directly related to an employee’s work, etc.)
  • Marketing costs (booths, fairs, etc.)
  • Variable salaries (e.g. commissions on sales)

Some “variable” spend, such as an employee’s commission on sales, can’t necessarily be cut, but it’s worthwhile putting it on the list for visibility.

An expense management system makes identifying and listing these categories of variable spend a much faster and easier task with the help of reporting. The system lists the categories and their associated spend is easily accessible, ready for analysis.

The important thing to remember here is that no expense is too small to be investigated, and every expense is worth examining.

With this spend data in hand, executives can more easily go about the task of deciding which costs will have the highest impact when reduced, while causing the minimum effects to the business.

2. Carry out analyses with up-to-date data

Consider multiple scenarios and whether you must cut costs you rather wouldn’t (such as laying people off) or if you can make the numbers work differently.

SaaS companies often have a yearly indexation clause which isn’t always applied. If this is the case in your organisation, consider going over older contracts and enforcing those indexations where possible. Suppliers you’ve worked with for a long time may be more willing to cut you some slack on payment terms or offer you a discount if this will help your company remain a paying customer of theirs.

Finding these costs and aggregating the data is easy with an expense management system. And you can use those numbers to your advantage when negotiating with suppliers to ensure the best possible prices, future-proofing your business a little bit more.

3. Create a “best case” and a “worst-case” financial forecast

Knowing what can be achieved in good times and in lean times will allow executives to plan accordingly based on which way the numbers are tilting.

In “worst-case” scenarios, expectations both within the company and from customers must be addressed and revised. This may mean reducing customer services hours (and therefore employees’ working hours) or the quality of a certain service if this can be done without overwhelmingly adverse consequences.

Part of your forecasts should also include at least one “rebound” plan to ensure that employees and the business are ready to roll once the economy picks up again. This rebound plan could include checking in with any furloughed employees (but not too often!) to let them know when you expect to be able to bring them back on. It could also require having a marketing plan ready to deploy as soon as business improves.

Whatever the rebound means for you, make sure you have a realistic strategy in place and that it’s one you will be comfortable rolling out quickly.

Balance cash flow with business activities

Large organisations around the world are facing backlash for having spent their tax cuts and cash reserves buying back shares to drive up their stock prices, leaving them with no cash to spare and asking for governmental aid in the midst of a crisis.

Having a comfortable and reliable cash flow is essential when the economy isn’t doing so well, especially for newer or smaller businesses which may not have access to credit lines or built up good reputations with their creditors yet.

A few simple ideas to ensure adequate cash flow include:

  • Carefully review personnel expenditures such as schedules and the variable costs mentioned earlier.
  • Institute or maintain work from home policies to lower costs for travel, supplies and other utilities.
  • Defer new hires unless they have a direct and immediate positive impact on your income.
  • Cancel non-essential projects and contract work with freelancers (after cautiously reviewing agreements and termination clauses).
  • Comb through all service contracts, cancel non-essential services and defer renewals wherever possible.
  • Have honest discussions with your vendors and suppliers about the potential for delayed payments or to negotiate lower rates.
  • Shop around for better deals - now is the time to look around at what other vendors offer and maybe switch to one with better rates, better service, or extended payment delays.

Access to up to date and accurate data is key in ensuring proper decision-making. Easily identify and analyse spend categories and vendors with the help of your expense management system (EMS).

Centralising spend data in an EMS allows for fingertip access and strategic management choices. And while we don’t recommend rushing into cost reductions, speed is of the essence when future-proofing a business difficult times and easy access to correct data is a significant contributor.

Pause business activities to help with spend management

Big plans such as a move, a re-brand, an office redecoration or any project with substantial costs and no immediate returns should be cancelled or postponed.

What this means will be different for each organisation. Maybe it’s putting on hold an order for new machinery or IT equipment. Perhaps it’s looking long and hard at whether those new facilities are worth it considering a reduced workforce or more widespread work from home policies. Or it could be not attending a roadshow or trade conference for the moment.

Whichever line items weigh heavy on your budget are worthwhile delaying in difficult times or until you have a better idea of what is going to happen to your business. This change will be painful foremployees and anyone else affected, but it’s a necessary pain to help the business survive.

mobilexpense: an EMS you can count on

An EMS can (and should) centralise more than just travel expenses. Corporate cards and travel management are types of expenses which can be managed by an EMS. But so are other recurring and non-recurring employee-based costs: fuel cards, mobile phone subscriptions and more can also be consolidated in an EMS for better expense tracking and reporting. And this means a tighter grip on your budget, with increased control on costs and improved cash flow management.

How it works step 1

Are you looking for an expense management system? Speak with our expert to learn how mobilexpense can help your business.

Posted on 05 Apr 2021