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SMEs and start-ups: reduce your expenses to increase your profits

Posted on Tuesday June 25, 2019

SMEs and start-ups: reduce your expenses to increase your profits

One of the biggest challenges faced by SMEs (small or medium enterprises) in New Brunswick is staying in control of expenses, especially during an expansion. Here are seven effective ways to reduce your expenses and increase your profits in the short term.

Optimization plan: a detailed evaluation of expenses

The first step is to sit down with your accountant and assess your different expenses. Create a table to separate expenses into two categories:

  • Fixed expenses (do not vary based on sales, such as your lease, the Internet, etc.).
  • Variable expenses (vary based on sales, such as manpower, raw material, suppliers, etc.).

Next, sort your expenses using general guidelines:

  • Necessary expenses that are difficult to cut down.
  • Justified expenses to be monitored.
  • Unnecessary (and sometimes exaggerated) expenses to be reviewed.

Prepare your optimization plan, targeting expenses that seem exaggerated first. For instance, if you have several vehicles in your fleet, and some of them are underused, you could sell one or more. Eliminating unnecessary expenses will translate into savings and quick results.

Manpower: manage employees with technological tools

Employee compensation is the most significant expense for most SMEs and start-ups. Setting up a digital punch system that calculates hours to the second makes it easier to manage tardiness and absences. It also ensures employees are paid for the actual hours worked. Some applications can also help you maximize your employees’ performance. For example, suggest Focus Booster or Rescue Time to your employees to help them concentrate. Other applications can also help employees calculate how much time is spent on each task or project, such as Paymo or Toggl. You can also better evaluate labour costs linked to your various activities. A product like OfficeVibe can also help measure your employees’ engagement and satisfaction, so as to limit resignations and reduce training costs.

Suppliers: ask for quotes, regularly launch calls for tenders and invite current suppliers to take part

The constant reevaluation of costs paid for various goods and services helps optimize long-term performance. When asking your suppliers to rebid on products and services you already buy (including your insurance and financial and professional services), you are sending a clear message that you are in optimization mode and testing the market. Even if you decide to keep your current suppliers, you will get a fair price. And you will get the chance to discover other suppliers who can offer you the same or more for less.

Equipment: rent instead of buying

If equipment is only needed for a single contract, you can rent it instead of buying it. You will immediately reduce your costs and won’t get stuck with equipment you don’t use. Remember that actual use, storage space, maintenance fees and loss of value must all be taken into consideration before buying new equipment.

Raw material: reduce losses and waste

Instill a zero-waste culture by inciting coordinators, buyers and foremen to only order what they need for their projects. Offer financial or other incentives to employees who come up with original waste-reduction methods. If you are in a sector where production residues can be saved, look for opportunities before simply paying to get rid of them.

Locales: optimize the use of spaces

Eliminate unused storage spaces and consider grouping activities in a single place. For instance, your conference room can probably serve as a rest area or cafeteria as well. Once the use of your premises has been optimized, sublet unused spaces or ask to renegotiate your lease based on what you truly use. The real estate market in New Brunswick is vast, and several cities have vacant locales. Moving your activities elsewhere is therefore relatively easy. As such, it is to your landlord’s benefit to keep you put.

Technology: invest in high tech to increase performance

In several sectors, we still use tried and true equipment, but they are not as efficient as their contemporary counterparts. By investing in mechanization and automation, you increase your employees’ performance and facilitate their day-to-day activities.

Another option for limiting labour costs: allow your employees who are done working to go home early, or to take unpaid vacation during slow periods. You will no doubt save on unproductive hours. Keep in mind that every dollar saved directly improves your bottom line!

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