7 Tips on How to Reduce Operational Expenses & Increase Profits

The best and fastest way of increasing profits is reducing operational costs, without jeopardizing the quality of your services and products.

In this article you will learn how to create and apply an 8 – steps cost – control system that will reduce or even eliminate redundant spending and augment your firm’s competitiveness.

1. Methodical Cost Control

Your first step is to identify and understand which exactly your main cost centres are. Is it buying of raw materials, production line expenses, promotion and advertising, administration costs?
Then check your net profits and losses for the previous 6 months and order the costs from highest to lowest. As you check carefully the list you will surely spot some areas that cost saving is both necessary and possible.
Try to concentrate on cutting expenses in areas which will prove more rewarding, such as:
• Reduce wages cost by assigning work to outsiders or by hiring part – time employees instead of full-time.
• Check if you can find a more economical insurance company.
• See whether suppliers of raw materials could be convinced to offer better rates for larger or more long–term orders.

2. Your Expenses vs. Your Budget

Second, write down all your expenses and compare them with the sum of money you had initially planned to spend for each area. If there are discrepancies between the two lists, try to understand what went wrong. That should be done on a monthly basis.
When expenses turn out to be much higher than planned, there is surely room for saving costs. On the other hand, lower expenses usually denote prudent management, but it could also indicate a quality plunge.
Comparing your business with other similar businesses could help you identify your strong points and weaknesses. For instance, if your operational costs are well above your industry’s average, it would be wise to understand why and adopt cost-saving solutions.

3. Involve the Right People

See if you can assign each area of expenses to a different employee or manager. Certain expenses will prove much easier to reduce if handled by a single person. In the meantime ask all employees to suggest ways of saving costs and offer incentives, such as small bonuses or days – off. You can also bring suppliers, customers and other businessmen into the game for some ideas.

4. Savings that… cost nothing

Certain expenses can be easily cut without jeopardizing the quality of your products and services, such as:
• Thoroughly check supplier invoices for mistakes or overcharges.
• Reduce electricity bills by turning off unused equipment.
• Get rid of advertising and promotion that does not pay back.
• Replace high-priced suppliers or ask for discounts or better terms.
• Use lower quality components for products that are by default considered cheap and disposable.
• Replace manual or paper-based systems with automated ones.
• Avoid small orders.

5. Search for other opportunities

All the previous steps will unavoidably reveal other opportunities to reduce expenses. Often, cutting on expenses requires some changes to way things are done, but it is important never to jeopardize quality. You could, for example:
• Assign parts of the job to freelancers and reduce payroll costs.
• Improve processes by eliminating double effort and expenses.
• Narrow your supplier list for better offer and more discounts.
• Opt for long – term supply contracts in return for better prices.
• Trim back product range and increase production runs.
• Consider sub-letting some of space you don’t use.
• Curtail communication costs by using email, internet calls etc.

6. Employee costs

Cutting on costs related to your stuff isn’t easy. For example, some businesses that have reduced training and meetings have suffered long-term losses. In addition, bad – quality equipment and low salaries poor will eventually drive away zealous and hard-working employees and cause grievances and murmuring – which is always counter – productive. So whatever change you are considering on this area, need careful planning and preparation.

7. Consult your Advisers

Last but not, in any way, least, you must consult your business advisers. In Cyprus there are some of the most qualified tax experts in the region. Well known for their in-depth knowledge in both local and international business management, they can help you find ways to eliminate unnecessary costs that will strengthen your business.