Understand & reduce your operating costs
It can be daunting to look at balance sheets and income statements. After all, coming across terms you’re unfamiliar with when you’re already trying to juggle business accounting only adds to your stress. Luckily, most of the terms are fairly self-explanatory.
We already know that every penny counts in a business and it’s a good idea to keep an eye on any outgoings. By familiarising yourself with key terms, you’re already putting an effort towards making your business more cost-effective and profitable. By reducing certain outgoings, you can capitalise on profit and show your stakeholders just how profitable you are.
As we come out of lockdown, a lot of small and medium-sized businesses are struggling financially. Unfortunately, we saw a lot of businesses go under during the pandemic and now we’re just starting to creep out. Now is the time to educate yourself on the outgoings of your company and start putting cost-cutting measures in place to keep these outgoings low.
One of the outgoing terms that you will probably be coming across is “operating costs”.
What are operating costs?
These are the outgoings of payments to keep up with admin, maintenance and facilities. One of the most important parts of operating costs is the cost of goods sold (COGS) - the direct costs of producing your business’s goods or services.
But operating costs can also include:
- Sales commissions
- Maintenance costs (facilities, utilities, equipment)
- Labour costs (staff, payroll)
- Employee benefits, health insurance, tax, pensions
- Depreciation
- Amortisation
When you know how to measure and record your operating costs, you’re in a much better position to start reducing these outgoings.
How can I cut operating costs?
There’s no one answer for every business and often it takes using several of these ideas in tandem to experiment with what works best for your business. It depends on your industry, the nature of your business, your management team, and your business goals.
We’ve outlined some guidelines to reducing operating costs that should provide a sounding board.
1. Automate processes with new technology
It’s true that technology is often more efficient than human labour. Automated machines can work quicker and more accurately than human workers, improving supply chain models and processes, as well as increasing working times.
But more than using machinery for the manufacturing, packaging, or processing aspects of your business, you should look into digitising other elements, especially admin. If you haven’t already, take your accounting and organisational records onto digital spreadsheets on your computer. Use a cloud network and email to instantly share files with your employees and clients.
Technologically apt companies are swiftly becoming more appealing to clients and stakeholders.
2. Shop around for more affordable rates
You should always keep an eye on alternative vendors but a fantastic way to drive costs down is to ask three separate vendors for quotes and then pit them against each other.
Whenever going to a vendor for a quote, always make sure to supply all the possible information they could need. Gaps in information could affect the quoted rate and even drive the price way up.
3. Hire interns
Interns are paid less than standard workers but are usually interested in your industry and in bettering their employability. Give them opportunities to shadow or meet with management, so that in return, you can work closely with schools, colleges, and universities to organise placement and internship schemes.
4. Turn away from traditional marketing methods and embrace the digital
Gone are the days of flyers, posters and newspaper advertising. These costly physical materials are often big holes in the pockets of businesses that should be making more profit than they are.
The most effective form of marketing is online – on the internet and on social media. Focus on developing your business’s Instagram, Facebook, Twitter, and TikTok to attract customers and clients this way. If you still send letters, turn to companies that will send regular newsletters to all of your email addresses on file.
5. Focus On SEO
SEO stands for search engine optimisation and means that the text on your website or social media is written specifically to make sure that it appears at the top of any internet search by potential clients. This is one of the easiest and cheapest ways to market your company.
6. Buy supplies and try not to lease
If you’re planning to use equipment or supplies long-term, then the financially wise decision is to buy instead of leasing. Buying assets can also provide an immediate, large tax deduction.
For all of your accounting needs, get in touch with 360 Accounting Services today.
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