Cost-cutting: 10 tips on how to save money smartly – Part 2

feature-savings-200aThe temptation to initiate a brutal round of cost-cutting can be easily understood when the debt collectors are at the door, cashflow has dried to a pathetic trickle and you’re being squeezed by the banks.

It can be hard to know where to begin and making cost-cutting decisions hastily, without proper consideration, can lead to more harm than good.

In part one of our two-part cost-cutting feature, we presented the first five of 10 great tips from our panel of experts to help you trim the fat but keep the muscle in your business.

So here are five more shrewd tips to help your business slash through the cost-cutting jungle from CPA policy advisor Gavan Ord, Market Gap Investments director Mike Sewell, SME Savings founder Michael Reid, Knowledge Equity director Courtney Clowes, and Financial Management Trainer principal Jan Barned.

6. Spend money to save money

Sometimes, spending money can save money in the long term. CPA policy advisor Gavan Ord gives the example of a bakery considering investing in a new oven.

“You’ve got options between keeping your old oven and investing in a new one. The old oven has a bit of tape here and there but it keeps going and costs a lot on electricity and repairs. Do you keep that going or invest in something new which is more efficient and produces more bread and has longer terms savings and is more productive? Many businesses will keep on using the old oven until it falls over, and it then becomes incredibly expensive to get something new to replace it,” he says.

SME Savings founder Michael Reid also believes businesses should continue spending money on entertainment during difficult financial times.

“Corporates cut entertainment immediately when there is a downturn. When they’re profitable they say go and entertain as much as you want, but this changes when there is a downturn. But those who don’t cut have good buy-in back when times are good because they maintain their client base. People leave if you cut those things,” he says.

7. Financial record keeping

Keeping track of a business’s financials ensures there are no nasty surprises come end of financial year and helps keep you out of trouble with the Australian Taxation Office, Financial Management Trainer principal Jan Barned says.

“Lots of people don’t feel that financial record keeping is the most important thing, but all the financial software available now is relatively cheap and it helps with making sure you’re compliant.

“Most SMBs go in undercapitalised and don’t do it right. Do a cashflow forecast and this will show how much money you need. If you can’t do some of these things, your business will not be able to operate the way you want it to,” she says.

Reid says business by numbers is the best approach to guaranteeing your business is running on the lowest costs, while maintaining important services.

I call it business by numbers because they all get to the point where they realise it comes down to getting the figures right – you’ve got to get the management tools right, the revenue trends, what’s working, what’s not and consider why there has been a dip in sales of this and that and then use this information.

“If you don’t have your financial reporting right, it’s like driving through country streets in a foreign country with your lights off,” he says.

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