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SMEs can free up cash flow by cutting costs

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SMEs who are feeling the pinch often mistakenly believe they have very few options to free up cash flow in tough economic conditions.

Businesses often overlook the potential of improving their operational efficiency to cut costs and improve cash flow in their business.

Jesse Weinberg, Head of the SME Customer Segment at FNB Business, says the beginning of the year is often a good time for businesses, regardless of size, to review their cost saving initiatives to determine areas for improvement. This should not be viewed as a once off initiative, but rather it should be a continuous and consistent effort that is tracked regularly to be effective.

He advises SMEs on some ideas to cut costs throughout the New Year:

Energy – adopting simple habits like switching off the aircon and lights or unplugging laptops and other office equipment when away from the office can go a long way in helping the business to reduce its electricity bill. For most small businesses now, electricity is an increasing cost item that must be understood.

More permanent alternatives such as installing energy efficient equipment and lighting systems may initially cost more, but would significantly reduce costs in the long-term. Apart from direct cost saving, systems such as solar can also ensure you down lose additional revenue during times of power-outages or load shedding.

Travelling costs – cutting the number of face-to-face meetings and empowering employees to work remotely can result in instant savings as businesses spend a lot of money just to attend meetings that could often be held remotely. This could be achieved quite simply with multi-party conference calls or video conference.

Digital alternatives such as Skype can help employees work remotely provided they have internet access. Furthermore, this frees up time allowing them to be more productive.

Create a cost-cutting culture – cutting costs is not an initiative that the business owner can implement alone. Creating a cost-cutting culture and getting all employees to participate often leads to better results.

Educating employees on the importance of cutting costs and rewarding those who do well can help get everyone involved. People love rewarding challenges and by somehow tracking cost reduction with an end-state prize could work very well.

Weinberg cautions, however, that business owners should monitor and ensure that cost cutting initiatives do not compromise the quality of work delivered.

Sharing ideas – sharing ideas with likeminded entrepreneurs can expose you to new trends and strategies.

Separate personal and business finances – mixing personal and business finances makes it difficult to budget and manage costs efficiently. Regardless of the stage of the business, keep your business transactions separated from your personal transactions makes a valuable difference from an accounting and cost management perspective as you can track things clearly and accurately.

Annual review – taking time to review performance for the past year helps the business to improve on efficiencies and set new, and realistic, goals for the next 12 months. It is important to study year-on-year comparisons of your business financials to understand the trends of the costs in your business. Remember, the trend is your friend.

“Don’t only start thinking about improving efficiencies in tough times; the ideal time to introduce a cost awareness initiative is when the business is doing well. Moreover, this should be viewed as a long-term goal – instead of an objective that can merely be achieved overnight,” concludes Weinberg.

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Alan Straton

Chief Cook, Bottle Washer and Broom Mechanic at MyPE
Passionate about Port Elizabeth and definitely NOT packing for Perth. Alan's ethos is epitomised in the words of Nelson Mandela; "I have fought against white domination and I have fought against black domination. I have cherished the idea of a democratic and free society. If need be, it is an ideal for which I am prepared to die." See more articles by Alan.