While you are running a business organisation, the two most basic ways of running it smoothly and developing it further are:
- Increasing your revenue
- Decreasing your expenditures
If you are able to increase your revenue while your expenses are constant, you will be able to make more profit that you can use for achieve growth goals.
On the other hand, if you are reducing your expenditure while your revenue is constant, you would be able to save more funds and cover for the stagnant revenue over time.
The majority of entrepreneurs have an ‘increase revenue’ mentality as compared to a ‘decrease expenses’ one. This is because it is always fruitful to see a rise in the money you earn. However, having a steady increase in revenue has become difficult in today’s market as there is cut-throat competition and there are enough providers for anything that the customers need.
Also, an increase in the revenue is not always in the entrepreneur’s hand. Even after you giving your best, you need to depend on factors like your customers, seasons and trends in the market. On the other hand, reducing expenses is completely in your hands.
When you have having a sloppy run in the market and are not able to generate enough revenue, you can cut off certain expenses and keep your business intact. This is why it is important to reduce expenses while running your business.
Managing a business enterprise involves several expenses. However, operating expenses are the easiest and safest to reduce as they are more mobile as compared to other costs (such as fixed costs). You can start a reduction in these expenses at any time you wish to.
What Are Operating Expenses?
Operating expenses are essentially the expenses required for the day-to-day management of your business. Unlike fixed costs, these expenses can vary over a short period of time.
There is a common misconception about operating expenses being related to production of goods. It is important to note that in spite of these expenses being incurred for day-to-day functioning of a firm, they are not directly related to production of a commodity.
Pension expenses, employee remuneration, office rent, electricity expenses, labour cost etc are all common examples of operating expenses.
Effective Ways Of Reducing Operating Expenses
Here are some of the most effective ways in which you can sustain your business by reducing operating costs:
Decreasing Your Operating Hours
If you run a business that doesn’t require being functional for a set interval of time daily, you can reduce the working hours of your company. This would reduce several operating expenses in a single go.
If your organisation cuts down on its operating hours, there would be lesser exploitation of electricity. Also, if you have labourers working in your premises on an hourly wage basis, it would save you enough money on labour charges. Cutting your working hours would also affect the salaries of your employees.
This is the most useful way of reducing operating expenses for seasonal business. Your business can stay open only for limited hours or days during the off-season period. This would indeed save you considerable money,
Sharing Your Workplace
Though majority of the entrepreneurs like privacy and secrecy of operations, sharing the workplace cuts down on a lot of costs.
The major slashing that happens here is that of the rent. There are businesses that need to take loans and advances from banks or alternative finance platforms especially to arrange rent for their workplace premises.
If you don’t need a huge area to function and you share your workplace with another business, all the office-related expenses get divided between the two of you. You can also choose to share your warehouse with another business if you feel it is too huge for your goods.
Replace Pay Raises with Value-added Incentives
There may be times when some of your employees have been performing exceptionally well, but you can’t afford to pay them more than what they are already receiving. You also can’t afford to lose valuable talent.
In these situations, you can reward your employees not on a monetary basis, but on a value-added basis. Give them incentives like flexible work hours, options of working from home and increased autonomy which would serve the purpose of reduced expenses as well as increased incentives.
Prevent Wastage Of Resources
This might come off as an obvious point, but this aspect is often overlooked by most of the entrepreneurs. Trivial actions like switching off lights, fans, ACs and other electrical appliances may seem to be unimportant while talking about operating costs, but they do count when looked upon from a broader perspective.
Also, avoid hiring more employees than required. It is always good to have alternatives and substitutes, but more employees also leads to more salaries being paid. Hire labourers on a daily basis and pay them precisely for the time they have worked. Indeed, a penny saved is a penny earned!