The BDC has countless resources available for businesses and organizations, from small operations to large-scale enterprises. One of their latest offerings is a quick read by one of the BDC's Senior Business Advisors on how to cut costs in your operation. Beyond simply finding more affordable suppliers, there are a host of strategies you can take as an entrepreneur to cut costs in your operations. To remain competitive, it's essential to evaluate your activities on a regular basis to determine how to make the most of your resources.
What is cost reduction and why is it important?
Reducing the costs of your various expense items in your business is a strategy you can use to increase your productivity, and therefore your profits. “It’s important because, especially in a small-business context, resources are not infinite, and you have to make the most of them, whether they are human, financial, material or technological resources,” says BDC Senior Business Advisor, Eric Trudeau.
What is cost elimination?
Cost elimination is a more drastic action that consists of looking at your various expenses and eliminating some of them. The real purpose of this action is to increase profits. However, there are various ways to achieve that objective, with the following three strategies being the most common:
- Cost elimination. As the name implies, this technique consists of identifying and eliminating unnecessary costs. Depending on the costs identified, this technique may have medium- and long-term implications. (For example, eliminating marketing costs may have an effect on sales in the long term. If positions are cut, staff morale may be affected.).
- Cost reduction. This technique consists of partially eliminating certain costs. It therefore has less of an effect than the first technique, and its impact may also be more limited. Examples of cost reductions could be reducing staff hours or redesigning certain products to reduce the cost of the materials used to make them.
- Increasing capacity. This technique has the greatest potential impact on an organization’s profits. It consists of finding more efficient ways of using the organization’s resources (human, material, technological and financial) to increase its overall capacity, and thus its sales. An example of this technique is reducing operational waste to increase the efficiency of operations, the availability of production equipment, etc.
What techniques can be used to cut costs?
Performance indicators. With so many things you can do to reduce your business costs, you need access to accurate data to make informed decisions. Establishing performance indicators for all your company’s activities will give you a good idea of what is happening each day, week and month, whether it comes to health and safety, quality, costs, turnaround times, staff engagement, etc. Once you have the right information, you can benchmark it against industry data.
From better allocating human resources (no, not layoffs - hire well and target the right skills) to structuring communications and optimizing operational processes, there are six questions to ask and answer in helping to cut costs and save money.
Read the complete article on How to Cust Costs & Save Money.
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