Learn to reduce your costs
Learn how to maximize your business resources and cut unnecessary expense.
Written by: Ana Paula Hernández Alday
The company tile floors and the Alvarez family will take no more. There is no cash flow, accounts payable and no people in the administration area suggests the reduction of payroll to the end of the year. This is not an isolated case. Actually this is the picture before which there are thousands of companies recorded a significant reduction in income and a decline in profits.
Only in the first quarter, the INEGI reported a 8.2% contraction in the Mexican economy, which is reflected in the drop in business at 7.8% and manufacturing by 9.9%. Although the crisis can not stop, it is time to take action to reduce your costs and increase the profitability of your business. How?
Sylvia Perales, director of operations Mexico Expense Reduction Analysts (ERA Mexico) and a specialist in managing operating expenses, make a first recommendation: "The way that resources are held not in production but hidden areas and items within the business. "
How to be more efficient
"In small companies, the diversion of cost or high cost is due to the lack of formalization of business processes, which are not limited to the procedures of the production area," says Bruno Blackmore Sanchez, manager of the Fraud Investigation consulting firm Ernst & Young, adding: "To reduce costs is important to analyze the processes of different areas and be open to perfect them, because there are always ways to improve."
In most companies, expenditures higher are considered strategic: payroll and production costs. While operating expenses, representing only 10 to 15% of income from a business, are not seen as an item of which could result in significant savings. "Nothing is more false," Perales says, "because a 20% reduction in operating expenses a company can increase its net income by up to 40 percent."
Per diem, printing, business cards, stationery, cafeteria, cleaning supplies, courier services, meals, corporate gifts and all that is required within a company for it to work, are some operating expenses that are scattered in different areas of a company. Therefore, make sure they are properly used, especially in areas related to running your business where revenues are not recorded, but only expenses such as administration, security, logistics, telecommunications and human resources.
cost reduction aims eventually to maximize resources and achieve greater efficiency in an enterprise. Here the first steps to initiate this process.
- Know your operating expenses and reduce them think have an immediate benefit in your statements.
- Define your needs, ie, establishing what your business requires and what areas you think you spend more. Notes
- the market. You must satisfy, and perhaps there are things you can improve from the inside out.
Before you engage in a process of maximization of resources also have to understand what each expense. To do this, talk with the head of each of the areas involved in the operation to justify and describe the benefit of the expenditures. Lean on the following questions.
- what the money is spent?
- What is the objective sought? How
- benefit the company?
Once you understand the cost, the next step is to delegate responsibility for the process to address finances or general management. Holders of these departments will be responsible for reviewing area by area in which resources are invested. Another useful tool is to have weekly and monthly statistics of the purchasing department.
to reduce costs there is no general rules. On the contrary, "each case is different and each process is a case. You can not apply for savings or reduction of certain material to the entire company, because it may affect your vendors or customers. Long term this will backfire, "said Perales.
savings Vision
One of the most common problems in business is the resistance to change. "There are deep-rooted customs and practices which over time become myths, 'This can not' or 'always been done that way', are typical taboos," says ERA Mexico specialist.
The idea that your suppliers are part of your team is true, but beware, they are also in a competitive market, they sell and, therefore, look after their interests. Attention! Often buy out of habit and perhaps are not as competitive prices. So monitor the market to work only with those who provide you with quality and good price.
An unwritten policy in most companies is the use of petty cash. This is a resource that can generarte great savings if you make purchases on a large scale economy, ie wholesale. Do not forget that the lack of time and the emergency department daily significantly raise your cost of operation, so he always wears a tight control on purchases.
Similarly worth paying special attention to three areas where costs can be realized excessive or capital flight which raise operating costs. "The first relates to the purchasing department where fraud can occur by acquisition, the second is the misappropriation of assets, ie products theft or misuse of services (car and driver) and, finally, the alteration of financial statements in operating expenses reflected in vouchers and bonds, "explains Blackmore.
To jump right to the analysis of these costs is important to get and analyze purchase orders, receipts and invoices. Another recommendation is to make sure your employees do not perceive the reduction of expenses as a negative, on the contrary, let them note that as in a house, in order to save on a company is to find solutions to not sacrifice quality of life and increase profitability. In the end, this will bring benefits to all that may be reflected, for example, sales or profits bonds work.
Blackmore, Ernst & Young, says that the easy way out to the problems of no use, "such as cutting staff, which is a measure that can affect your income in the short term but the medium through a decline in the quality of service. " Before cutting expenditure is necessary to make a comprehensive analysis. "There is a process reengineering, just to make small changes in practices and customs to reduce costs in strategic areas of operation," concludes Perales, Mexico ERA.
Typical errors
- View the market as the only factor affecting the profitability of your business, regardless of internal reasons.
- recognize that not every company can improve and streamline their processes.
- not pay attention to operating costs and consider them all as necessary and impossible to reduce.
- Make certain expenses and purchases unwritten laws and not debatable for modification.
Tips to save
- Shop the monthly (or annual) wholesale. This will prevent diversion of resources daily or weekly through petty cash.
- Affiliate to any price to save club. Remember that if you buy a scale you can get better deals.
- Enroll in a business exchange system, where you can pay in kind some products and services your business uses as input operation.
- Take the spaces within your company, business or office, provided that employees are not uncomfortable.
- Analyzes the possibility of acquiring or renewing machinery, vehicles or computer equipment through leasing.
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