Itโs expensive to run a business, and finding ways to reduce costs isnโt obvious. If you go for the cheapest option, the trade-off is quality. If your quality is compromised, your reputation and even your profits are at risk.
Addressing cost drivers like wages or compliance is less about cutting corners and more about spending wisely. Make your money go further without sacrificing your quality, reputation, or profits.
Reviewing your finances and finding easy wins
While the big cost drivers often stay the same, you can still find easy wins by taking a top-down approach to your expenses. An audit of your spending can reveal saving opportunities. Remember, have a focus on productivity rather than shaving costs here and there โ you rarely see much upside in penny-pinching.
For example, finding a couple of dollars in savings here or there will have minimal impact on a business, but finding 10% savings by negotiating with suppliers will have a huge impact and improve your cash flow.
How to address salary & wages
Labour accounts for at least a third of expenses for most Aussie businesses. You need people to run your business, and your employees need a salary and wages to make a living. Since salary and wages are necessary, it is better to view this cost centre as an ongoing investment in your business.
This means you need to start investing in your employees effectively at the beginning of your hiring cycle and refine each stage:
Interview stage > Onboarding stage > Standard operating procedure > Development stage.
What you want to do is create a reliable process that gets your employees up to speed, contributing, and even improving your business. It is also worth noting that staff who are invested in by a business are happier, which reduces staff turnover.
Interviewing & onboarding
The costs of hiring and onboarding new employees are significant commitments for businesses; the last thing you want is an employee who is either unqualified or slow to contribute. By having a go-to guide for each stage, you increase the likelihood of hiring the right employee and having them contribute sooner in their employment.
Standard operating procedures
Teaching staff what work they need to do and how to do it is great, but not a great use of your time every time you have a new hire. Create a document that can be shared and taught by other staff members.
If your business has specific tasks, such as manual labour and admin, provide clear guidelines for employees to follow, so they don’t have to โreinventโ the wheel. Of course, these procedures shouldnโt be static, as you can refine them as you go along.
Training and development
Good training and development for your employees can turn them into real assets to your business. It makes your staff not just competent, but better value.
By viewing your employees as assets rather than costs, you can ensure they are productive for your business. Not only are they productive, but well-invested staff save you time and money as they are likely to stay longer and be more active in things that save you money, like protecting your business from scams.
How to address your energy consumption
Energy bills are consistently increasing, but itโs not enough to just get a better deal from energy companies. Instead, focus on making your energy consumption efficient by going green with your business.
Efficient energy products
Low-cost energy products are tempting, but you need to look beyond cost and think about function. For instance, fluorescent lighting, while cheaper to install, is considerably less efficient than LEDs. Look at the long-term efficiency of products that better use your energy.
But what about less obvious options? Here are some ways to reduce your carbon footprint while saving money:
- Energy management system (EMS): In NSW, there is an initiative to help small businesses by assisting with the installation and cost of a metering system that tracks energy usage. This can help reduce your energy bill by 5-15% by identifying waste periods and minimising energy usage.
- Thermal Paint Additives: By using paint material with thermal additives, you can reduce the heat absorption of your building. This better insulates your business property, so you donโt have to blast the air conditioning in summer. This can lower your air condition usage by 40%.
- Power Purchase Agreements (PPAs): These agreements allow you to purchase renewable energy at a fixed rate, thereby avoiding the need for solar or wind infrastructure.
Efficient energy practices
Changing how you operate during peak energy consumption periods is a practical way to reduce your energy use (and your energy bill). For example, Ausgrid says peak times during summer and winter are 3 pm to 9 pm. By instituting a low-consumption/shutoff period for non-critical appliances, you can reduce demand charges on your energy bill.
Going green and your value proposition
If sustainability becomes a significant part of your operations, celebrate it and weave it into your marketing. This not only delivers cost savings but also a value proposition you can include in your goods and services.
How to address your property & overhead costs
If you need a physical location to run your business, you canโt avoid overhead costs like rent or utility bills. Instead, you might have to audit your expenses with a fine comb.
Map property costs
To start addressing your property costs, break them down so you know where your money goes. Donโt just look at rent: look at cleaning costs, electricity, and maintenance.
- Electricity/utilities: Incorporate energy-efficiency strategies outlined above, such as LED lighting.
- Cleaning: Use cleaning services for high-priority areas (e.g., customer interaction areas) and reduce frequency for low-priority areas.
- Maintenance: Incorporate planned maintenance rather than reactive maintenance, and tee up services for which you have a cash reserve for capital expenditures (e.g., HVAC servicing).
Maximise the space you occupy
Maximising your space means making it more productive for customers or employees. If your businessโs location is where customers come to purchase from you, develop your space as part of your identity is vital.
For example, say a retail store wants to make purchasing from them as easy as possible to increase the likelihood of turning browsing customers into paying customers.
The store could invest in the flow of the store floor (to make it easier to navigate), marketing tactics for high-selling items (to increase sales margins), and sales-closing training for staff (to seize opportunities).
Negotiate lease structure and terms
Leasing negotiations arenโt always on the side of the renter, especially if your business space is specialised, or if youโve spent time building the perfect location for your business.
When you approach rent negotiations, always review benchmarks for the location and explore ways to flatten the rent increases. If your trade is seasonal or volatile, instead of locking in fixed terms year-round, consider a turnover-based rent that shares the risk with your landlord.
Addressing your compliance costs
There are many compliance requirements that Australian businesses need to meet. On their own, the costs are small, but they stack up (i.e. BAS, payroll tax, industry-specific licenses). You canโt reduce compliance costs, but you can address them by either being more productive through software tools, or sharing the cost burden by applying for grants and funding.
Digitising your business
Whatever industry you operate in, there will be software tailored to it. For medical practices, there is practice management software; for professional services, there will be sales and customer relationship management software. The point is that using the right software can make your business more efficient, so you can meet your obligations without breaking the bank.
Grants and funding
There are over 500 grant programs available to small businesses covering a variety of industries and applications. It is worth looking into what programs you can apply for on the business government website. For example, regardless of your location, there is a wage subsidy to help you hire new staff. This can help reduce hiring costs, since the government shares those costs with you.
Addressing costs and keeping quality
When you look at how much it costs to run your business, itโs tempting to just start cutting costs and going with cheaper alternatives. But thatโs a zero-sum game, because the wrong cut can seriously hurt your business โ and eventually, youโll run out of costs to cut.
This is why it’s better to spend smarter, not less. Make your money do more. You canโt avoid salary, rent, utilities, and compliance, but you can treat them like investments. For example:
- Happy, productive employees are worth their salaries.
- Going green can reduce your energy bills and attract environmentally-conscious customers.
- Rent is worth it if your property brings new customers, maximises your space, and makes it easy to run your business.
- The right software can keep your business compliant and save time (while avoiding fines!)
Refining these areas of your business helps you not just maintain quality, but improve it โ along with your reputation and profits.
