Welcome to the eighth week of the #BusinessChallenge. Can you believe that we are done with the second month already?
Last week I ended the “Customers” theme by talking about Cross-Selling vs Up-selling.
This week we commence with a new theme – Cost-Cutting.
“Yeah, Yeah, I know. Cut down costs to make more money. Heard it before…”
Well, yes. You need to do it to make more money, but it is so much more than just making money.
“Succeeding in business is not just about making money.”Daniel Snyder
Cost-cutting is a necessary business exercise and, when implemented correctly, will do so much more than just help you to make more money.
Cost-cutting can be very dangerous as well. If you cut costs so drastically where it saves money every month but hurts production or quality your business will close down.
So, there is a happy medium to be achieved. So do not be like a crazy guy with a machete looking for zombies. Be strategic about where and why you cut costs.
Ok Tiaan, so what can a proper Cost-Cutting exercise do for my business?
Improve profitability by identifying areas of waste.
Many entrepreneurs believe that a cost-cutting exercise entails just removing unnecessary expenses from your business. So, they will go and cancel their current internet provider, believing the new provider is a lot cheaper and it is worth moving over.
Well, there might be a reason they are so much cheaper. They might have a permanent bad signal. This means that you will end up paying more on dropped calls and messages not being delivered.
The correct way is to rather test the alternative provider first before switching over immediately. Test before you just cut the cost and make a mistake that will cost you more in the end.
If you approach the process correctly, you will cut the truly unnecessary costs like the company luxury German sedan. I mean will it really attract more customers?
Do you really need the best cellphone contract with the latest iPhone or Samsung Galaxy for your staff or can they get by with a cheaper package and cheaper phone?
The exercise is supposed to inspect and identify the areas and examples of waste in your business.
Improve production by reducing clutter.
I have turned many businesses around by simply reducing clutter.
Sorry that I have to use this example, but it really is THE perfect example of clutter in business for me. How many times have you driven past a site in your local municipality where there are at least 8 workers doing a job.
Four of the workers are standing around looking at the 2 who are actually working and 2 more are waving a red flag which isn’t even near the work area or effective. I can cut at least 50% of the work and save money to improve the process.
It happens so often that entrepreneurs solve a business problem or bottleneck by employing more people to finish the job. This is the worst decision you can make to solve the problem.
Ask your “5-Why’s” to determine why is there a problem with the output.
Improve sustainability by reducing the break-even point.
Once your break-even point is reduced, your business becomes more sustainable. This might sound like a weird statement to make but think of it this way.
The lower the break-even point is, the less turnover your business would need to generate.
Ok, so the challenge this week is to open up your financials or management accounts (hopefully you do this every month!) and start by highlighting the areas where you think you can reduce costs. Highlight these areas with a bright colour pen to draw your attention to them and let’s wait until next week for the next step.