In times of crisis, it’s natural for companies to seek to reduce costs to guarantee the solidity of their ventures. However, many businessmen don’t know how to identify the expenses that can be cut.
This article will offer you a few tips on how to reduce your company’s costs. Take a look!
Reducing costs: study your numbers
It’s natural for a company to pay attention to external numbers, such as market indicators or growth projections, for example. However, the greatest source of information for business decision making comes from your company itself.
That’s why it’s very important to have access to indicators — for a wide variety of departments and processes — which are organized and available.
In this way, you can safely make important decisions such as whether to discontinue a product.
Evaluate the quality of your processes
Your final product is the sum of various forms of effort called processes. Guaranteeing that they’re efficient can increase your company’s profit — without having to attract another client.
In turbulent times, poorly designed processes can suck precious resources from your company. Evaluate how much each of your processes costs and whether it’s aligned with your organization’s goals.
Calculating the return on investment (ROI) for a process can help measure its results.
Talk with your suppliers
One way of economizing without affecting your company’s strategy is renegotiating the value of your next purchases with your suppliers or searching for new partners.
In the same way that consumers favor promotions when it’s time to go shopping at the supermarket, companies need to opt for strategic partnerships during times of recession.
However, be careful not to put the quality of your final product at risk. Select companies that offer the same level of quality as your customers will expect.
Avoid waste
When we talk about waste in business, we’re not just talking about electricity and water which frequently draw our attention. Any resource that’s used inefficiently can be considered a loss.
Your company should ask itself: how can we produce in the same manner but spend less?
No expense should be underestimated. After all, it’s obvious how small savings can make a difference over a long period of time.
Train your employees
Before resorting to the easiest way of reducing costs (laying off workers), question yourself about the productivity of your team — or the lack thereof.
Low productivity and high indices or rework drag down your business’s activity, but they may be the result of errors in the training of your employees, for example. That’s why you should find out how to make your team more efficient, because using strategies with pauses for feedback can correct errors and increase your team’s productivity.
Remember that economic crises are cyclical and strategies to reduce costs taken during these times can benefit your company in the future, making it more competitive and guaranteeing it access to new markets.
None of these measures should be viewed in a negative fashion. They’re simply common reorganization necessities in the business world.
What’s important is that your company has access to internal data to make decisions in the correct manner. This is why you should invest in technologies that can improve your company’s management.
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Every businessman knows that controlling a company’s costs is important, however, when everything’s going well this fact can be forgotten, and often it’s remembered only when an economic recession comes – like the one we’re going through today.
When facing a crisis, two words should become more important: cost management. Find out more about this!
Basically, cost management is rethinking your costs in terms of the products and services that your company offers. In a shoe factory, for example, this involves all the costs that go into producing the final product, the shoes.
Some businessmen believe that it’s important to cut costs in this case, but cutting costs without studying their effects can be dangerous. For example: a company decides to lay off temporary workers, but months later it won’t be able to accept a big order because it doesn’t have enough employees to do the job.
The first step in managing costs efficiently is identifying waste. Think of your company as a residence. What advice would you give a housewife who’s complaining about her household budget, but always leaves her taps running?
To find out where your company is wasting resources, it’s important to monitor internal processes in order to perceive whether they’re being conducted in an efficient manner.
You could be losing sales because your salespeople aren’t providing the correct information, for example, which would demonstrate that there’s a problem with your hiring and/or training of employees.
At times of economic crisis, people rethink their spending. Your customer may do the same thing and begin to use another less expensive brand to save money. However, the businessman should have a long-term vision and realize that crises come, but also go away. Thus, you need to analyze the risks that changing the quality of your product could pose for you in the future.
This doesn’t mean that a company can’t reevaluate supplier contracts, on the contrary! Moments of economic crisis require this approach. Your procurement process should prioritize the best supplier for the lowest cost.
Some fundamental company decisions will be made quickly, which is why data related to purchasing and costs should be analyzed with precision.
Having this information in digital form is fundamental, but it’s no use having hundreds of spreadsheets that no one understands. This type of data storage and analysis only wastes your company’s time and money.
To implement good cost management means making the right decisions and, to do this, you need to have quality information always in the hands of the company’s leaders.
Companies of various sizes already use software to improve their business’s information management. These programs don’t just organize data, they analyze it, helping your company make better decisions.
Cost management isn’t something that needs to be done only in moments of crisis, but it’s at these times that it becomes essential. Why not start now? Discover our solutions at www.myabcm.com/solutions/
Your business’s rate of return is the ratio between profit gained and total investment during a given period. Or in other words, if your balance is positive, that means that your profits are greater than the value you’ve invested in the company. Following this indicator is important in evaluating whether the decisions you’re taking are bringing good results and whether your money’s being well spent.
Below we list 5 mistakes that result in your business having an unsatisfactory rate of return. Check it out!
Before investing in a new product, even if it’s a high quality product, you need to evaluate whether it will receive a warm reception from your customers. If not, you run the risk of investing capital in something that will remain in storage losing money. In other words, you’ll be spending money that won’t result in any financial return for your company.
You need to focus your efforts on attracting new customers for your business and leveraging your sales. However, you should also be concerned with retaining the customers that you’ve already won. This will greatly lower your customer costs, guaranteeing you greater profitability than if you concern yourself solely with new customers.
In order to retain your customers, you need to invest in improving your relationship with them by offering them positive buying experiences and, if possible, structuring a post-sales process.
Controlling costs is fundamental to knowing precisely how much your company spends to maintain its activities, and if this represents a risk of future losses.
However, this variable can also directly affect your business’s rate of return. When costs are high, profitability is compromised — even if your revenues are high, a large part of them will be used to cover your costs – which directly affects your rate of return given that it directly depends on your net profits.
That being true, you need to identify and create controls that will help you visualize where your money is being spent, which costs are superfluous, and what actions need to be taken to reduce them.
Ignoring delays in payment is a serious mistake, because even if your revenues are high, this will affect the value that’s effectively entering your company’s accounts. Or in other words, this affects profit, which affects your business’s rate of return.
To avoid this, you need to keep track of it and find ways to diminish these delays – such as creating a debt collection policy and finding more efficient ways to restrict credit, for example.
Investing in technology helps automate processes, diminishes the risk of errors, makes your data safer and more reliable, and improves data sharing, which makes your processes more agile and efficient, among other benefits. Investing in a solution that helps optimize your financial routines will help you reduce costs, which will later be reflected in your rate of return.
In general, you need to identify these mistakes that hurt your business’s rate of return and seek solutions that will resolve these problems. Ignoring these issues or not knowing about them is something that can seriously affect your business’s financial health, and in the long run, your business’s staying power in the market.
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All companies should seek to be efficient, but some of us still don’t really understand what it means to be efficient. Many entrepreneurs confuse efficiency with “achieving targets.” They believe that, if a company manages to fulfill its commitments, in terms of its finances as well as its customers, that makes it competent, but that isn’t true. In this post, we’ll teach you how to increase the operational efficiency of your company by listing a few actions and points to pay attention to.
What is operational efficiency? Why is paying attention to this so important to your company? Find out in this article!
The concept of operational efficiency encompasses the practice of improving all of your processes (all your company’s activities that lead to your final product or service). For example, a supermarket has various internal methods (of production, hiring, sales and communications, for example) and all of these processes help the company achieve a target, which may be in terms of product sales.
But even if the supermarket is hitting its sales targets, this doesn’t mean that it has achieved operational efficiency. Bad stock control can lead to the spoiling of products and losses for the company. If the purchasing department isn’t able to efficiently identify the ideal suppliers, the supermarket is missing out on a chance for big savings. Thus, these examples illustrate the importance of knowing your company well, because the bottom line is that each venture possesses its own reality in terms of its processes.
As a businessman you should list your company’s processes and follow them to discover whether they’re being performed in the correct manner (generating profit, offering quality and avoiding waste, for example). If you are able to identify failures in your processes, try to study alternatives to improve them.
It’s not unusual for businessmen to believe that seeking operational efficiency is directly linked to laying off workers. This isn’t true. Pay attention if you’re able to identify losses due to employee performance, because you may be running your hiring process in an incorrect manner, or in other words, your company may be hiring the wrong people for the functions you need to perform.
In addition, you may find that you need to create or improve your employee training processes. Seeking quick cost savings through layoffs is usually an inefficient solution – you’re removing the person but not the process or activity that he or she is performing (which frequently is not adding value to the company and then is performed by other employees – which frequently just overloads them). Also laying off employees is a temporary solution, which may not help in the medium or long term. The best strategy to improve operational competence depends on analyzing the results of each company department rather than careless cost cutting.
First of all, seeking operational efficiency consists of knowing your own company. You should also pay attention to all of your business’s results and not just the final results. Don’t confuse efficiency with cutting costs, because it has other objectives besides savings, such as improving your company’s productivity. This is why associating it with layoffs is a mistake.
What are the advantages of investing in operational efficiency?
The quest for operational efficiency is to identify problems and create solutions. There is no point in knowing that a certain process is not happening in the best way possible and taking no action to reverse it.
The key is to understand that every challenge encountered is actually an opportunity to be better every day. Although some amounts need to be invested, they should never be considered as costs. These are investments that will surely bring returns.
When a company provides personnel training, for example, it is enabling people to perform the service in the best way. A team that has good communication tends to keep goals and expectations aligned, which makes everyone work for the same purpose.
Purchasing processes and the finance department can also be positively impacted by operational efficiency. With it, employees optimize their time and the company gains productivity.
Needless to say, from that point until increasing profits and raising your market levels is just one step.
How to achieve this efficiency?
While you may have already understood why you should deploy operational efficiency in your business, you may still feel a bit lost, not knowing exactly where to start.
To help you, we’ve listed some valuable tips below:
Study the business situation
In order to correct unsatisfactory processes, it is necessary, first of all, to discover what these processes are. Only then it will be possible to improve them.
To do this survey, the manager should talk to the people who head departments and evaluate the conditions of the company in the market in which it operates. It is only after a few reports and reflections that a conclusion can be drawn.
Pay attention to production costs
Every production generates a cost. However, it is important to know exactly how much resource, manpower and time each process requires. This way, it is easier to identify outlier expenses.
Once identified, one must find out the reason to seek a correction that allows the reduction of costs without losing quality.
Map process failures
Analyzing each process, piece by piece, also allows the identification of failures. They need to be measured and related so that it is clear where the changes should happen.
Of course, theoretically everything can be improved, but you need to know what to prioritize when fixing problems.
Discover the source of failures
There is no point in knowing the failures if you do not know where they come from. Whenever a failure is identified, it is important to find out its origin and why it has occurred.
This way, it is possible to correct the problem from its root, avoiding the creation of illusory solutions that only mask inefficiencies in the productive process.
Use technology
Nowadays, there is a technological tool for everything. You can store data, integrate departments, and create reports that allow for a broader analysis of the company’s situation.
Performing this whole process manually would certainly require a much longer time, in addition to leaving you susceptible to failures. That’s why we often say that technology is a great ally in achieving operational efficiency.
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Various businessmen agree that providing the best service possible is what guarantees the public’s interest. This starts with the product or service concept and ends with its delivery to the end user and customer service. This philosophy usually leads to the creation of a total quality management system for the services that the company provides the public.
However, for some companies this task can present problems, because they believe that increasing and controlling product quality means increasing production costs. In fact, what tends to occur is the opposite: the company reduces its costs and increases profitability.
To illustrate this better, we’ve singled out some ways in which a quality management system can increase your products’ profit margins. Follow along!
To evaluate the final quality of a product, you need to think about the entire process that’s involved in making it, from the raw materials to its delivery. This means that, with a complete evaluation, you’ll be able to identify failures in your workflow, discovering where there’s waste in terms of time and effort.
Another point is observing the origin of these errors. Do your employees have the proper training? Do the materials used meet the public’s expectations? Are there bureaucratic processes that are holding up sales? Everything can and should be evaluated in quality management to avoid the accumulation of small losses. Thus, you can reduce your gross production costs without losing sight of quality.
Optimization has already been mentioned as a highly relevant factor in terms of increasing a product’s profit margin. However, there’s another aspect involved: automation. Every extra minute or hour that an employee spends filling in a spreadsheet, is time that could be used to talk with another customer or resolve problems that require human action.
In addition, this way of operating leaves you with widely dispersed information, which hinders data analysis. With an automated system of data management, this process will be much faster and accurate, allowing you to make better informed decisions in less time.
A common mistake in some sectors is to lose sight of your customers and focus just on a closed process. This is such a serious error that it can lead companies to bankruptcy, depending on the conditions. The decisions taken by management should favor the most organic functioning of the company, especially if it’s necessary to integrate several offices. But we also can’t forget that the one who covers the costs is always the customer.
One way a quality management system can keep the company close to its customer base is to use opinion surveys. This can be done in several ways: from small post-sale questionnaires to longer conversations. This second method may be more appropriate for companies that intend on keeping up with their customers over longer time periods. With this feedback, management can find problems that can’t be identified by those who are too close to the production process.
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The current economic situation has caused companies to reinvent themselves, changing the way they act in the market, and has also led them to try to reduce their operational costs. Reducing costs is the simplest decision to make when your goal is to leverage your gains and differentiate your company in the market.
There are various ways to lower your company’s costs, ranging from improving tasks and reducing material waste to the feared large scale layoffs.
These days there are new innovative and efficient ways to reduce costs that guarantee great results for the companies that adopt them. That’s why we’ve selected the 4 best trends when the subject is reducing costs. Check them out!
Cloud computing is one of the most recent market technologies. Storing your information in a cloud can be integrated with your company’s most varied processes and operations, making your data exchanges faster and significantly more efficient.
Besides a considerable reduction in server and maintenance expenses, this storage technology enables you to centralize repairs – you don’t have to manage various computers and servers spread throughout your organization.
Importing machines, equipment or materials increases your company’s costs in terms of taxes, fees and transport, among other things. There’s an easy way to avoid all of the expenses related to importing: use suppliers within your own country.
Finding domestic companies that meet your needs is a trend that has become more common due to the high value of the dollar. Buying equipment and materials from Brazilian companies will save your business thousands of reais by the end of the year. That’s the reason why you should search the market thoroughly for suppliers that can meet your demands.
One of the fundamental tenets of business administration states that inventory is money that isn’t doing anything – and it means less available cashflow. In addition to this, working with large levels of inventory results in various costs for your company such as the hiring of more workers, the need for a larger physical space, the acquisition of special storage closets and compartments to store your products – as well as the administration of your storage space itself.
Thus, a great way to reduce the costs of managing your business is to work with lower levels of inventory. In doing this, don’t stop trying to be more efficient in your tasks and services, because this allows your inventory to be as small as possible leaving just the amount required for your company’s operation.
Having a well trained professional team, besides increasing the quality of your products and services, allows you to achieve great reductions in operational costs. This is why training your employees is fundamental for every company that wants to differentiate itself in the market.
It’s important to remember that trained employees can easily resolve everyday problems and are of great help in improving tasks and reducing small losses.
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When you look at it closely, a company is very much like a living organism. Various departments work together at the same time to ensure that the company as a whole functions well. However, just as a sick organism has difficulty in functioning, a company can also get into trouble when its processes are failing, and a way to solve this problem is optimizing your processes.
Company processes can be understood as a group of activities that are performed with the objective of meeting your firm’s common goal. There are internal processes – production and assembly, for example — and external processes — like sales processes. These processes vary for every business activity.
Some businessmen focus their efforts just on the final results of the company. In a retail store, for example, increasing sales is the main target. However, failure in other activities can lead to losses, even if the desired final results are being achieved.
In practice, optimizing is gaining agility and quality in a performed task. That’s why a businessman should map all of the company’s processes. This is the only way to understand whether a process is efficient or not.
Below is a list of some processes that frequently need to be optimized in organizations. Take a look!
Hiring someone is an investment. That’s why ensuring that the person you’ve hired is the right one for the job is fundamental, because the cost of hiring is high.
Besides benefits, this process involves work on the part of the HR team, and the time that these employees spend is valuable.
Training an employee who won’t remain in your company and having to begin the hiring process all over again also affects department productivity, leading to delays in project completion.
Communication is a focus in business, but mainly in terms of the consumer. It’s important to remember that failures in internal communication will result in tasks being done in an unsatisfactory manner which harms quality and requires rework – a word that should be avoided in any company.
Thus, you need to verify if the tools you use for internal communication are efficient.
Many production processes can be automated, thus diminishing labor costs and improving the quality of the final product. Attention should also be paid to rework, duplicate work, and even problems with the factory layout which can affect the company’s final results.
Customer behavior has changed due to the increasing use of the internet, which is why it’s important for every company to have a digital presence, even if your objective is not to sell on the web. Post-sales customer service can be done through online chats for example.
In some cases, even when you meet your targets, your profit margin doesn’t increase, and this happens because you’re not paying attention to strategic cost management. Technology can help this type of process become more efficient.
Now that you know the importance of process optimization, it’s time to learn what the 5 most common mistakes in business cost management are and how to avoid them! Let’s go?
We know that to establish a sustainable development plan, we need detailed planning with intelligent strategies, monitoring and constant control. However, putting this plan into action is another story. This can require a lot of time, which can result in managers losing their way. What many managers don’t know is that there are management apps available online which can help with your company’s operational and managerial tasks. They’re real support tools that make work more efficient and require less time to execute!
So to help you drive your company’s growth, we’ve selected the best management apps for you. Enjoy!
Tired of organizing infinite numbers of printed receipts to send to your accounting department? With the management app Receipt Bank, you won’t need to do this anymore, because it stores and processes all your receipts and invoices directly from your smartphone or tablet.
This management app converts all these documents into data in an intelligent manner, making the management of your bills and expected receivables easier and more efficient.
Every company needs a decent website, because after all one’s online presence is fundamental for any business. The problem is that creating and configuring a handsome, modern and functional layout can be expensive and complex.
To resolve this problem, use the app Moonfruit. It offers a series of responsive templates for your website and helps optimize the processes that your website executes.
Now you don’t have to print a document every time you need to sign it. The app DocuSign makes it possible to sign documents entirely online by using any mobile device. The system is very simple: you save a valid signature and presto, you can sign any type of virtual document!
This is an app that functions using the SaaS system (software as a service): you don’t need to install the program, you can just access the web page and pay a monthly fee, which will vary depending on the number of users in your company (up to 10, 20, 50 or 100) and your storage capacity.
The manager registers the company or the department, adds company users and informs the system who they can or cannot receive tasks from. Then one needs to register the main daily activities and define the priorities. Each project has its own timeline and feedback.
The activities are sent to the employee by the platform which, based on previous history or on information input by the user, presents the ideal date to conclude the project. The platform also estimates when the task will be completed, based on a list of the employee’s remaining tasks. It’s possible to reprioritize a task, which will lead to the system adjusting the rest of the activities.
Managers can access project, team productivity and time management reports daily.
This app allows you to make backups of all the files on your computer automatically. Better still: you can synchronize the backups with a mobile device so you can work away from the office.
Once installed, this management app begins the automatic backup process for your files, making it possible to recover them is something happens.
This app is an important online tool for managing your accounts, including budgeting, revenue forecasts and expenses — and helps you keep your cashflow well organized and efficient.
This system considers trends and financial patterns to make the most accurate forecasts possible. It’s very useful, especially for managers who have difficulty in managing their books.
Whether you need this kind of help or not, these management apps can help you improve your company’s productivity and give you more time to focus on strategic management and business growth.
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Reducing costs is an essential topic in terms of positioning your company in the market. This step comes with a series of challenges, because it’s not enough to cut costs or the number of employees. You need to invest in planning.
Strategic management is a tool that helps managers increase profitability, avoid waste and keep their company in front of the competition by setting it apart from others in the market.
In this post we offer 5 tips to optimize your evaluation of costs and gain a competitive advantage. Check it out!
It may seem like an obvious idea, but many companies don’t include cost reduction in their targets. Strategic management is not only oriented towards increasing sales, but also towards making a forecast of costs that don’t affect essential aspects of your company or quality of service. Intelligent planning is the road to making the investments that will lead to your company’s growth, not its failure.
Reducing costs in a way that compromises your company’s quality is not an intelligent management strategy. The customer is the main source of a company’s income, and this is why cutting costs for products, services and customer service will have a negative effect on your company’s image and cause a steep decline in sales in the medium and long term.
Monopolizing the strategic management of a company is a great mistake when we’re dealing with cost reduction. Internal communication should be focused on getting all of your employees on the same page.
You should do this not just in terms of seeking solutions, but also in terms of increasing productivity and in everyday activities such as the use of cleaning products, electricity and the telephone, and any other activity that can minimize costs.
The value chain concept developed by Michael Porter is an efficient way to identify activities that add value to a company and also those that can be eliminated, and examines the entire process starting with the acquisition of raw materials through the delivery of your product and concluding with customer service.
This chain is divided into the main activities that are related to sales, maintenance and support, such as:
And the support activities:
By structuring your company using this model, you as a manager can evaluate costs more easily and identify what affects profits, the activities that add value and don’t add value, and how you can optimize your customer service.
In addition to the value chain, many specialists focus on Michael Porter’s models to detect errors, avoid reworking and increase competitiveness. The generic strategies proposed by this Harvard Business School professor focus on:
These models are very helpful in guiding your strategic management, but like all theory, they include aspects that may not fit with your targets or your business model. The ideal is that you define the best strategy for you in terms of scope and integrate it with your other business tools.
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Cost management is a fundamental aspect of corporate planning. Without good analysis and good management of a company’s investments and internal finances, it’s impossible to know how much each product and service costs and which products, services, clients and channels are really profitable.
Many companies tend to use Excel spreadsheets or Enterprise Resource Planning (ERP) software, which can handle company needs in terms of cost analysis only up to a certain level of precision. However, when more accuracy and flexibility are needed – and the time available for retrieving and analyzing data decreases – cost management software offering greater detail, practicality and flexibility, becomes indispensible.
For this post, we’ve gathered together information on this subject. If you want to know why you should invest in cost management software, read on!
Why invest in cost management software?
In many cases organizations of various sizes perform cost analyses using simple spreadsheets. Despite their ease of use, the creating a model using Excel spreadsheets presents various problems in terms of model flexibility, information security, and a lack of cost tracking and forecasting components; invariably the user ends up dedicating lots of effort to maintenance and spends little time on continually improving the model. It isn’t rare for us to come across clients who construct truly integrated systems based on hundreds and frequently thousands of associated spreadsheets.
A recent report by Ernst & Young states that “modeling costs with spreadsheets can only be done for very simple models and even with these models it can be very difficult to analyze them and make decisions based on them, which is why they are not recommended.”
By using cost management software, you’ll have the tools and components necessary to control all your company’s costs in a simple manner. Complex analyses such as an analysis of capacity/idle time costs, profitability per Product, Service, Client and Channel, and detailed analyses of effort related to processes, as well as other analyses, can be accomplished easily using an appropriate tool designed and built for this very purpose.
How can I calculate costs correctly?
One difficulty that companies constantly face is determining their costs correctly especially when they have a wide variety of products, services, clients and channels. In addition, the progressive increase of administrative and overhead costs in general makes determining costs a true challenge for any type of organization. Assigning costs using simple rules such as quantities or revenues was good enough when administrative costs were not significant, but in today’s environment greater accuracy is needed and this is no longer a viable approach.
In general companies know their total costs, revenues and results, but how much does this mean in terms of each product, service, client and channel? Using business rules and cost drivers that correspond to reality and cause and effect is essential to achieving greater accuracy in this calculation. Questions such as reciprocal cost assignments where different administrative areas charge each other various costs (for example: HR provides services to Systems and Production; Systems provides services to HR and Production) and the need to understand exactly how the costs in support areas affect the costs of Products, Clients and Channels cannot be determined using simple spreadsheets, which won’t provide the results necessary to facilitate good management.
How do I control process costs?
In general, organizations have already mapped or are mapping their processes to reduce inefficiency, diminish rework, and document their practices. But how much does each task, activity or process cost? How many of these costs are inherent to the Process and how many come from Support Areas? Furthermore, how much do these costs contribute to your company’s various Products, Services and Channels? These are some of the questions which are answered by cost management software.
These systems also make it possible to generate graphics quickly, selecting only data that is of interest, which makes it easier to observe crucial information that can be used to make decisions in terms of Costs and Profitability.
How do I analyze cost indicators, flow charts and cost tracing?
Another efficient way to control costs is through the use of cost indicators. They are completely integrated in cost management software, making the overall control of costs easier.
Besides this, you can control how different areas of your company affect costs, generating flow charts and detailing the contributions of each department.
Another useful tool is cost tracing which allows you to determine the source and destination of Product costs, analyzing the impact of different tasks related to the Product, enabling you to reallocate investments or costs, optimizing the process as a whole.
If you’re a manager and perceive that you need to make more efficient financial decisions more quickly and more strategically, installing cost management software is without a doubt a great choice.
Are you interested in the resources that this kind of software offers? Does your company already use cost management software? Leave a comment!
