5 Tips to reduce operational costs of your small business.

Small businesses do focus on increasing income, but also it is important to set a focus to reduce operational costs, otherwise, their profit margin could remain low.

Keep reading some tips in how to reduce operational costs to help your small business to have healthier finances.

5 Tips to reduce operational costs of your small business.
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Why business should focust on reducing operational costs?

Probably one reason that why small businesses struggle is due to their lack of proper cash flow management. 

And it is way easy to get business ideas, and starting up a business, but when it comes out to really know your numbers and calculating your real profit, it is where the challenge starts.

While doing a business plan, in the paper it looks really nice how the forecasts and number predictions are, but in reality, operating a business sometimes shows expenses that were not in the budget or the costs go higher than expected.

There are external environmental factors that also come in play where the business doesn’t have too much control of it.

For sure, developing a good product with its brand and knowing the market could give a boost on sales, but what it the costs are over control, certainly sometimes it could cost more to do a sale, than the proper sale.

Small Business Manager
Small business owner planning work

1. Analyze your cost structure

One thing that I do recommend for small business owners and all those entrepreneurs is to stop overthinking and start doing.

Put your business in operation and in that way you will start to really learn about it.

Once you are already running your business, you will get to see how many sales are your doing.

But also, you would have already learned about what were the supplies that you needed to do that first sell.

The main question here is, ok, what did you required to do that first sale? 

As you work on, you will learn how much the costs of running your business are.

Put atention to the details of your supplies and also about all the extra costs.

Start labelling the expenses as your fixed costs and variable costs. This way you can already start building the picture of your cost structure.

Without knowing your costs, it will be very difficult to decide where you can actually reduce them.

2. Cost of products, can you change supplier or formula?

This might be one of a hard cost to reduce, because you might want to remain or keep the quality of your product and sometimes the supplies might not be as easy to replace.

Searching for several suppliers is a starting point to decide if either it is convenient to chance an aspect of your product or service.

Run your cost analysis to know it is a good choice to decide between your current supplier or choos another one.

Also, as an example, there are products that its package is plastic based, and even sometimes is cheaper to use glass packages plust the benefit of being more ecological. This way you are also aiming for a more sustainable decision.

3. Reducing Utilities Costs

There are costs that are a must. And if you are a brick and mortar business, your store has to run with the utilities expenses.

In some countries it is possible to change your electricity supplier, but in countries such in Mexico, you must go with one electricity supplier. In those cases it is recommended to invest in solar panels, which can help you to produce your own energy and also reduce the electricity costs.

As well with the water infrastructure, since they are mainly government operated, it is better to search for sustainable solutions that can help you to reduce the consumption. Or you can even bring up with creative ideas of water recycling or use the water of rain for tasks such as cleaning.

Young employee startup workers group stacking hands at urban studio

4. Human resources, an expense or investment?

When there were financial problems in businesses, one of the main actions that have been used were to cut the payroll.

How many cases of people being fired have we heard, specially during crisis times.

But is ultimately the best alternative?

Businesses need human capital to keep running, otherwise letting all the to do tasks to one person can be overwhelming.

But also, when there is financial stress, or the need to reduce costs, firing people should not be the first solution.

With the recent trend of remote work, it is possible now to give people more advantages than disadvantages.

What I do consider the future of work, is that for some employees it could be beneficial to work on a on-demand base work, meaning that they are just required for some tasks and not for their- 9-5 time.

What ultimately businesses need from some people are their results because of their qualities and experiences. The outcome is over more important, that just filling a chair. 

More and more people are willing to go under such types of scheme of work, due to personal reasons, other professional projects that they want to develop, or simply because they do waste lots of their time waiting for tasks to to.

Long term might be more beneficial for a business, no matter if it is small or big, to build a relationship with a trustful employee that can keep the mutual cooperation.

5. Technology to improve proccesses

The investment in new technologies can bring up the cost reduction of operations.

Either can be directly a reduction on the product or service, or can be by reducing the time spent on a certain process.

Small business owners should search for technologies that can help them to improve their business.

As businesses and economical reactivation will go on, attending to fairs give ideas to business owners of what new can they implement.

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