No matter how established or novice, companies cannot escape the inevitable rise of operational expenses. With a rapidly fluctuating marketplace, growing competition, and inflation, the demands of keeping a business running increase year to year. For many business owners, this may result in a reduction of profits and greater difficulties in staying afloat or ahead.
When it comes to the challenge of managing expenses, it may seem like cutting them is the only viable option, but there are more effective strategies that can bolster your overall revenue in the long run. Here are three approaches to reducing your operational expenses without compromising your performance.
Adopt Tech-Based Solutions
It is no secret that advanced technology is the way of the future. Many businesses still undermine the positive impacts that adopting new technologies can have on the long-term success of their operations, while others are embracing it with open arms. In 2019, companies spent more than $2 trillion on digital transformation, with 70% of them saying they either “have a digital transformation strategy in place or are working on one.”
There are countless elements of operational management that can be improved by integrating tech-based solutions. In particular, automation systems and software that streamline basic operational functions like accounting, CRM, and payroll make processes that are typically manual and time-consuming much quicker and more cost-effective. The efficiency of such technology reduces the labor and costs required for running a business. Not only does that reduce the burden on operational expenses, but it can also produce higher quality results at a faster rate because it lessens the probability of human error.
Implementing such processes also allows for the advantageous use of data analytics in reaching your business objectives. Without it, you miss out on one of the most valuable resources available in making impactful and profitable decisions. For example, businesses without an efficient inventory management system may be draining their working capital on storage with no way of knowing otherwise. Without the ability to optimize the amount and type of inventory they keep in their warehouse, those businesses would incur excessive costs like taxes, insurance, and labor. Rather than waste capital on extraneous inventory, the right tracking software and data system would allow them to know what products to push back to their manufacturers or suppliers, and how much they should keep on hand.
Outsource to Experts
Paying someone else to do something you could do yourself may feel counter-intuitive, but outsourcing certain aspects of your operations can actually reduce the cost of operations and produce better results. For most small and medium-sized enterprises, it is rare and expensive to have in-house experts on all essential areas of operations, so it can be beneficial to hire a specialized third party to tackle tasks or initiatives that are outside your team’s wheelhouse.
Outsourcing ensures that qualified experts are behind the wheels of your operations, and it also prevents internal staff from being over-burdened. This is especially helpful in periods of growth and development when your company does not have the resources for certain full-time employees yet. The necessary work is still accomplished properly without significant strain on your cash flow, and the employees you do have will not have to divert their time from other essential tasks. Additionally, working with third parties helps your company build relationships within relevant industries to improve your network and brand recognition. Strong relationships strengthen your reputability to open new doors and opportunities for your company in the future.
Reinvent Your Workspace & Workforce
A sizable portion of operational expenses for most companies is facilities maintenance for workspaces. Rent, utilities, insurance, and upkeep for an office adds up to be a significant cost, so instead of decreasing the number of employees on your payroll, you can save on expenses by reconfiguring the workspace.
Before this year, working from home was often seen as a luxury that could not be widely accommodated, but countless companies now see it as a necessity due to the COVID-19 pandemic. Moreover, telecommuting can benefit your operational budget by reducing the amount of physical office space needed. Not only that, but various studies have shown that the flexibility of working from home can actually increase productivity and overall performance in employees. While telecommuting is not a plausible option for every company, it does highlight the benefits that prioritizing your workforce’s needs can have for your company.
Within your existing workspace, going green can alleviate expenses in several ways. You can optimize your energy usage by getting an audit for recommendations on how to manage it more efficiently. Your company can also explore the possibility of tax deductions for switching to renewable sources of energy. Shifting from analog paperwork to digital files reduces the cost of supplies while increasing the accessibility and scalability of your data and information. Beyond the workspace, companies like Nestle and Google are also finding ways to make their services and products more sustainable to lower operational costs.
Strategize for the Future
Ultimately, the key to managing the rise of operational expenses is not just slashing funds or pinching pennies; it is about making strategic investments and optimizing the efficiency of your operations to minimize losses and maximize profits. To plan ahead for the future, prepare for growth, and preserve your cash flow by working with LQD Business Finance. With a wide variety of flexible financing solutions, LQD Finance can help sustain and develop your operations for long-lasting success. Connect with one of our financial experts today to learn more.