As more businesses struggle to maintain profit margins and survive in this tough operating environment, the last thing SMEs should be doing is wasting more money while trying to cut costs.
Elize Giese, Head of Investments at FNB Business says one of the biggest mistakes that SMEs make when trying to cut costs is failing to devise holistic strategies dedicated to assist their businesses from financial losses. Instead, small business owners often make rash decisions when under pressure to try and cut costs, but end up doing more harm than good.
Giese shares ten common cost cutting mistakes that business owners should aim to avoid.
- Long-term consultancy contract – consultants make sense when there is a short-term need for specialist skills. If however, it is an important part of your business in the long term, it might make sense to hire a full-time resource. Using consultants for long term projects can prove to be costly for SMEs. Therefore, developing the required skills internally would not only lead to efficiency, but cost savings in the long term.
- Over reliance on recruitment agencies – before SMEs pay recruitment agencies a small fortune to find them skilled personnel, they should first consult internally for referrals. This would save the business a lot of money in placement fees.
- Funding events and sponsorships – instead of going all out to fund sponsorship activities or events, SMEs should approach other like-minded businesses for collaboration. This would enable them to share the costs, while still making sure that the business reaches its objectives.
- Poor marketing and advertising efforts – not having a well-defined marketing and advertising strategy that aligns with overall business objectives and messaging will result in the business wasting money, time and effort. PR is also an effective way to profile yourself and your business as a thought leader in your area of expertise.
- Failing to create a savings culture – SMEs should educate and encourage their staff to be mindful of costs at all times. For example, this can start with simple interventions such as using a projector during meetings instead of printing paper all the time.
- Skipping maintenance – skipping maintenance schedules in an attempt to cut expenses will end up costing a business more if machinery or equipment fails.
- Spending too much time in meetings – travelling to meetings is not only time consuming, but also leads to less productivity and increased expenses. SMEs should consider using the internet, video and telephone conferencing facilities to save on costs.
- Not shopping around for suppliers – in order to get the best quality service at competitive prices, SMEs should always shop around and get at least three independent quotes, before a decisions is made.
- Not reviewing insurance policies – failing to review insurance policies on a regular basis can leave businesses over or under-insured during unforeseen circumstances.
- Quick fix solutions – there is no quick fix solution to cutting costs. If business owners are serious about cutting costs, a long-term strategy with realistic objectives is essential.
“In reality, cost cutting is more complicated than it seems. Once a plan has been drafted, SMEs should involve their staff in reviewing every detail of the strategy and its implications, to avoid costly mistakes during implementation. You don’t want to hamper your business but rather spend money in the right places ,” concludes Giese.