Effective ways to cut costs without retrenching staff
When times are tough, business owners often look at retrenching certain employees to cut down on costs when there are other higher (and often unnecessary) costs they could potentially get rid of first.
If you take the time to analyse your business model and see where you have been overspending, there are far more ways in which you can reduce your costs without having to terminate any contracts.
Depending on the size of your business, overhead costs will be more. But, if that is the case, then you are probably spending more on entertainment and incentives too. As a final resort, employee layoffs are a natural process in the business cycle but do not make an impulse decision. This could leave you in an even worse situation which may lead to further risks at a later stage in your production cycle.
Here are a few tips to consider before you resort to letting employees go:
Apply for a business loan
Often times, business owners apply for a loan either in their personal or business capacity to assist them with paying off debt. This, of course, can be a helpful option if you need money urgently. It can also be used to pay for any machinery or equipment rentals while you cut costs in other areas of your business. To see how much money you are able to qualify for, use an online business loans calculator available in South Africa where you will receive a breakdown of what you can afford before you apply for a loan.
Reduce fleet or vehicle expenses
When you are experiencing tough times with your business, one of the costs you can cut down on are your vehicle expenses. Especially when petrol costs are sky high. You can either downscale on your fleet or look for smaller and more affordable options for your employees. Pre-owned or used cars are a good place to start, but also take a look at the financing costs that you may be faced with. You want to reduce your repayments, so do your research online and look at a business loan calculator to see what your options are. Based on the results, you will be able to analyse your business vehicle finance requirements.
Introduce temporary pay cuts
If you want to keep each employee, you could consider pay cuts. This is one of the most direct ways to cut overhead costs without actually cutting the employees themselves. While this might lead to further resignations, people who cannot afford to lose their jobs will stick with the company.
The strategy with this approach, however, is that you need to make a decision to either cut everyone’s salaries or nobody’s salary. You cannot allow senior management to keep theirs while the rest of your staff suffer. Employees need to work hard together to, hopefully, reduce the pay cut time. Money is a major motivator and if everyone works together, productivity will be increased in a big way.
In addition to the standard pay cut, you could reduce the number of hours worked to meet their updated salaries. Or you could suspend any employee bonuses for a certain period of time.
Reduce entertainment expenses
Any additional costs that are over and above your working expenses, you need to reduce. For instance, stop hosting weekly events that cost money. These are hefty expenses that, of course, motivate your employees to work harder and enjoy their time at work. But, unfortunately, they are unnecessary costs when your business is experiencing financial trouble. Reduce your events or company incentives, for example, the free food and drinks you provide to your employees and use those costs for pressing bills. Other perks such as office stationery and your fancy coffee machine are costs that can also be cut.
Freeze recruitment and cross-train employees
During financial difficulties or moments when money is tight and you cannot afford to splurge, you will need to cut back on recruiting new people and make do with who you have. Take the time to train the employees you have and utilise them for a variety of different tasks. While it might seem unsettling for employees because they won’t be paid more to do more, they will be able to grow their skillset.
Reduce your office space costs
If you are renting office space, it would help to minimise your space in order to reduce those costs. If you cannot negotiate better rates with your landlord, you will need to move. During your research process, try to keep your office in an area your customers can easily access, but shop around for rental options that will best suit your budget. This will help to reduce this major expense.