Cash gaps are a significant risk for any business. Therefore, it is essential to minimize them.
With the pandemic, the question of saving costs for small businesses has become acute. Unless this is done, the risk of losing the company grows even greater. Thus, it’s essential to change quickly to stay afloat in the current realities. So in this article, you’ll learn what basic steps you need to keep your business during and after COVID-19.
Reasons for Needing to Save Costs
Maintaining financial sustainability requires adapting existing business planning systems to a more turbulent and uncertain environment in which profitability, cash flow, and access to financing come under pressure. So now is an excellent time to re-evaluate and update the cash planning process, as there are many reasons to do so.
❌ The slowdown of the global economy due to COVID-19;
❌ The adverse effects of the pandemic on global supply chains;
❌ Shortages of key supplies;
❌ Low labor mobilization;
❌ High cost to rent office property.
Thus, in light of the global economic slowdown, even the most profitable business can quickly become unsustainable without proper cash controls. COVID-19 immediately detects existing cash management problems and conducts aggressive stress tests on companies’ readiness to adapt to the current realities of the financial market. But if you need even more evidence of why you should follow the essential money-saving tips, use paper writing services and order research on this issue.
Money-Saving Tips and Ideas
First, it is crucial to understand the costs and separately analyze the fixed and variable ones. An increase in variable costs and a decrease in income is also possible if buying less raw materials is more expensive than buying wholesale.
However, the fixed costs, which don’t change, are the main reason for the decrease in income. Specified expenses include rent of premises for a warehouse, store, office, payment for additional services, etc. Therefore it is the fixed costs that need to be optimized. And below, you’ll learn how to do it in the best way.
# 1 Reduce the Working Day
Take out some of the personnel involved, for example, in producing a certain amount of products, not for a full day, but a certain number of hours. But consider that you should warn its employees about such decisions in advance.
# 2 Provide Piece Rate Pay
It’s possible to tie wages to the volume of work. For example, the team, which works on manufacturing products, receives funds from the corresponding amount of goods and the sales department from their implementation.
# 3 Use Outsourcing
Why not transfer part of the responsibilities or processes to outside specialists? Then, they can do the work on a project basis rather than permanently.
# 4 Save on Office Rent
Transferring employees to remote work will help to reduce the cost of renting space and its maintenance. That this decision would be the right one is confirmed by the fact that almost two-thirds (65%) of large international companies reduced their costs by restructuring office space, according to a study conducted by Knight Frank.
# 5 Save on Loans
Often a big part of the cost is interest on loans. A loan on more favorable terms with low rates will help to solve this situation. First, you need to contact the company’s bank, where the lender may agree to lower interest rates. Such a technique is called refinancing.
# 6 Save on Material Expenses
It is always possible to find better terms in working with suppliers of raw materials and materials for production. So it would help if you did not stop looking for more good offers, in parallel negotiating with valid contractors for discounts or deferred payments. It’s also essential to analyze how production is going. For example, perhaps many materials will remain, or less will be enough for production or logistics to be optimized.
# 7 Save Money on Additional Services
It’s essential to review the relevance of other solutions the company uses in its business processes and analyze how relevant they are. Necessary they are and perhaps do without them, without violating the integrity of the business.
Often leasing is expensive, and the space is not used optimally. Possibly 1-2 warehouses will be enough to store products instead of 5. If you need space for document storage, consider switching to electronic document management, saving paper storage costs.
# 8 Adapt Your Business Model to a Changing Market
First, it’s essential to understand the trends in your market volume: how much it has decreased now, in the local virus situation, and how the market volume will potentially change after the COVID-19 is over.
# 9 Plan for Cost and Staff Optimization Scenarios
The excellent point is to divide all company expenses into categories: A – vital to the company’s existence, B – of secondary importance, and C – auxiliary ones that increase work comfort. Then, if the financial projections leave much desired, cut costs starting with category C.
It’s also essential to do an ABC analysis of positions for their importance to the business’s existence. Finally, if you want to keep your team, you need to have a downsizing plan in hand because procrastination in this matter at some point can cost you the company.
# 10 Take Control of All Cash Flows
Cash gaps are a significant risk for any business. Therefore, it is essential to minimize them; for this, it is crucial to implement systematic forecasting and redistribution of cash flows. The business owner’s main management document in a crisis is a cash flow forecast. If you see that you are going into a cash gap, negotiate with contractors and suppliers to reschedule payments, this will play a lifesaving role for the company.
One of the main fears of any businessman is to lose his business. After all, it is his brainchild with much effort and energy invested. So every entrepreneur is ready to fight at all costs to retain his position and market share. However, statistics show that saving costs is necessary for many companies in a crisis. But the good news is that after reading this article, it will be much easier for you.