Cutting Costs and Outsourcing – Hour 7

The 9 Hour Small Business Tune-Up
Hour 7

Costs Cutting and Outsourcing

All businesses can benefit from cost-cutting once in a while. Our daily business operations cause us to accumulate extra expenses that we could do without.

This section concentrates on eliminating all the unproductive elements of your business. You may want to review this part of the program once every six months.

What follows are some areas where money can usually be saved in a business. Be sure to add your own cost-saving ideas to this list.

Services:

All businesses require services to operate, but some of the services you pay for can possibly be cut from your budget. Review all the services that you use to determine if they are necessary.

For example, if your Internet access provider charges $89.95/month and you can get the same service (with the equivalent reliability, support, etc.) for $59.95/month, making this change would result in a savings of $30 per month.

This amount may not seem like much, but multiply that by 12 months and you would be saving $360.00 savings per year. This is still not a big deal, but find 10 or 20 additional areas where you can save similar amounts of money, and you’ll start to see savings in the thousands.

You could use these funds in more productive areas of your business such as advertising, paying off debts, upgrading equipment, offsetting the expense of hiring employees; or making the office more efficient, comfortable, and attractive.

Assets:

Assets that are not productive, have no future use, and don’t serve a purpose, are a waste. If they are just sitting there gathering dust or depreciating, liquidate them as soon as possible and use the funds in more productive areas of your business. How many dead assets does your company have?

For example, suppose you own a warehouse that’s debt-free and is attached to your office. It was once used for storing products. Now the manufacturers ship the products directly to the customer. You keep the warehouse because it’s attached to your office, you think you might need it someday, and it’s an investment.

But does it make sense to keep the warehouse? Sell the building and move to a more efficient location. Or if you like the area and the office is convenient, lease out the warehouse. That way it will at least bring in income. The point is to eliminate all wasted assets and put the savings to work in more productive areas.

Exercise: Eliminating Unnecessary Cost and Assets:

The examples below refer to items that are not used to their full potential. Transferring the funds to other areas of your business would increase your profits.

Do you have any of the following?

• Subscriptions to magazines that you don’t read or memberships to organizations that are unnecessary.
• Extra phone lines, unnecessary long-distance calls, or excessive cell phone use.
• Vehicle leases.
• Excessive payroll.
• Unused services.
• Ineffective advertising.
• Luxury items or expenses that exceed your income.
• Excessive stock (products that just take up shelf space.)
• Unused office space.
• Company vehicles that are rarely driven.
• Unused equipment.
• Unused buildings or furniture.
• Departments that are not related to your core business.

Fill in the table below:

List all of the items, business practices, and investments that you have that are unprofitable:

This exercise should give you a rough idea of how much you can save and apply to more profitable areas of your business.

Outsourcing

You can’t do everything yourself and expect positive results. often it’s better to focus your efforts on your core business and outsource other jobs to other people or firms. You can then concentrate on running, directing, maintaining, and expanding your core business.

Contemplating outsourcing may raise concerns about money or security. When making your decision, consider the time and money it would take you to do the job yourself while still having to maintain the quality of your other work.

As for security, firms that you would outsource your jobs to may be even stricter than you are. They must practice confidentiality in order to stay in business. Check with the Better Business Bureau to determine a company’s reputation. Also, keep in mind that bringing in a new employee to do the job in-house can bring its own security problems.

Example:

Can you save money by preparing your own taxes? Yes, you can. But what are you really saving?

Do you have time to keep up with the changing tax laws? Do you know about all the deductions you can legally take? Do you understand the tax system and laws? Can you learn it? Is it wise to get so involved in accounting and taxes, or would you be better off focusing your energy on other aspects of your business?

The only advantage to doing your own taxes is that you would be more familiar with the numbers related to your business (provided you’re doing the books correctly).

Instead of doing everything yourself, you may wish to consider keeping a simple account of your revenue and expenditures and request a monthly report from your accountant for comparison.

Example:

You wish to create your own stationery, letterhead, envelopes, and business cards, but this would require software and a working knowledge of how to use it to create the designs.

You would also have to take the time to print your letterhead and envelopes and print your cards and then cut them.

• Doing all this, how long would it take you to reach the point where you could actually use your stationery?
• Would it be worth your time?
• Do you want to do this?
• Is this task an essential part of operating your business?

Exercise: Is Outsourcing Right For You?

1. Make a list of every task that you could outsource in your business.

2. Now list the advantages and disadvantages of outsourcing these tasks.

Cash Flow

A healthy cash flow is always an advantage in business. If problems are caught soon enough, even a failing business can survive if it has one. Imagine what such a cash flow could do for normal business.

With a healthy cash flow, you can create a budget, make it through slow times, and obtain a good line of credit for expansion.

Here are some tips to help you increase and stabilize your cash flow:

• Offer down-payments for products or services that you offer on credit. If you are waiting 30 days for payment, try to get a 20% down-payment, or something as effective.
• Make sure your payment deadlines are, at a minimum, one to two weeks later than your invoice dates. For example, if you order something for a customer and you give him 30 days to pay, try to get 45 days to pay the supplier. This extra time means that even if the customer is late paying, you won’t necessarily be late paying the supplier. The extra time also gives plenty of time for the banks to process everyone’s checks.
• Offer discounts for cash payments.
• Implement ways to increase profits without jeopardizing your business.
• Don’t waste time on jobs that don’t bring in any money. This time would be better spent on profitable and paying jobs.
• Introduce a product line that has a high turnover rate, and require payment in cash.
• Have a sale.
• Liquidate unwanted merchandise.

Exercise: Improving Cash Flow:

Brainstorm ways in which you might apply the suggestions above to your business, and come up with some ideas of your own. Make a list now on your phone or computer or use a pad and paper

Next: Hour 8

Back to The Table of Contents of The 9 hour Business Tune-Up