The more money you save on overhead means more money to put back in your business. Here are some tips to save.
A great business generates lots of cash and requires little capital to grow, according to legendary investor Warren Buffett.
That reminds us two challenges that companies face each day when trying to increase cash flow: how to allocate limited resources and what to prioritize.
These decisions are especially important for small and medium enterprises because their likelihood of bankruptcy is higher.
Each day more than 150 companies file for commercial bankruptcy according to American Bankruptcy Institute reflecting the risk of running a company with limited finances.
Cutting expenses is a great way to boost cash flow, and a lower cost structure allows your business to differentiate itself through better-priced offerings. Here are five ways to slash your costs.
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1. Leverage the Share Economy
While you'll have to be discerning in selecting a vendor, you can find experts who possess plenty of experience in their craft. So if you're operating on a shoestring budget, you can hire a freelance designer to create a logo or a YouTube personality to promote your products for as little as $10 to $20.
That's because the share economy has made the marketplace extremely competitive for service providers. As a consequence, knowledge workers are being pushed to add more value at reduced price points. Customers don't like to pay for overhead, and in adapting to new economic realities, many professionals work from home (and save money by telecommuting); use personal devices for productivity (thus eliminating the need for office equipment); and seek other ways of reducing overhead (such as using a home-based internet connection).
The freelancer's cost-cutting leads to extreme cost-efficiency, and those savings are passed on to consumers.
2. Use Crowdfunding to Lower Your Cost of Capital
It's no secret that since the 2008 financial crisis, banks have been more unwilling to loan money. And given economic and political uncertainties, venture capitalists and other investors can require more equity in exchange for funds due to the perception of higher investment risk for many U.S. companies. This business climate can increase a company's cost of capital.
But the digital age has democratized corporate financing. And disruptive trends, such as FinTech, are radically changing how people and establishments conduct transactions. Crowdfunding can lower your cost of capital by connecting with potential investors and customers who wholeheartedly embrace your company mission and product offerings. In other words, you can bypass skeptical lenders and VCs and reach out to a more receptive audience, an audience that's willing to see past the investment risk.
Crowdfunding can also be used for specific, short-term projects. Sites such as Plumfund enable you to raise money for personal and business purposes. If your business does not currently need the cash but may need it in the future, crowdfunding sites are an excellent way to establish relationships with future investors and customers.
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3. Seek Free Information or Other Resources
Each year, U.S. companies and individuals pay consultants more than $250 billion in fees. You can cut your business expenses by minimizing the billable hours of your tax accountants, consultants and other professionals (i.e., photographers and transcriptionists). For example, Shake lets you find free legal agreements that can be created, signed and sent legally.
The key is to find disruptive apps or websites that offer comparable value for free or at minimal cost. Perhaps there's a website that procures volunteers or interns to help your establishment during the summer. Or maybe there's an organization that connects your type of products or services to non-profits or military associations.
And consider that niche apps or providers may fill a need better than more popular options. For instance, free stock image sites may remove the need to hire a photographer for your project. Or if you want to collect outstanding receivables, don't just automatically use run-of-the-mill collection agencies. You may want to consider those that specialize in a specific niche such as commercial debt or personal loans.
4. Get a Co-Working Office Space
If you run a small enterprise or if your company has locations in multiple cities, it may not be economical to pay for an entire office space. ShareDesk and DeskTime are open desk platforms that let you rent a place to work often for under $100 a month.
Co-working offices are great options for salespersons or managers who travel regularly. All you're really paying for is a desk and amenities, which helps to slash your administrative costs.
5. Rethink Other Business Processes
The digital age and the share economy have made a large impact on the travel and communications industries. Uber and Airbnb have been enormously successful by making cab rides and room stays much cheaper. These two cases show how businesses can leverage a nationwide or global network of freelancers to add value to customers.
Times are changing, and as a manager, you'll have to think outside the box and constantly seek cheaper options for holding a meeting, commuting, traveling and other work-related functions. For instance, a video conferencing call may be more appropriate instead of flying to another city. If you're launching a new product, you may want to build an online store through Shopify rather than hire an expensive team of programmers.
The key is to think of new ways of saving money and to be willing to embrace disruptive change.
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Cost-cutting shouldn't just be a periodic exercise for improving the bottom line. It's a key driver for standing out in the marketplace. And because there are countless innovations, apps, and websites that are disrupting how people do business, you'll need to stay abreast of key trends that could help your business.
Thinking outside the box will help you to slash costs and help your company compete in a crowded marketplace.