Hi folks, and welcome to another episode of our podcast. Today, we're diving into the topic of cutting and managing business costs. It's an essential aspect of running a successful business, so let's crack on with this week's episode.

Understanding the Importance of Cost Management:

First of all, it's crucial to understand the importance of effective cost management. Both small and large businesses can benefit from it.

Identifying Areas for Cost Reduction:

The next thing you do is identify areas where you can reduce costs without compromising quality. Remember, it's not just about cutting expenses but doing it smartly.

Exploring Cost-Cutting Strategies:

Now, within the costs that we have, let's look at some strategies to cut them down. Automation is certainly something to be recommended.

Collaborating and Outsourcing:

What else can we look at? Collaborating with other businesses or outsourcing certain tasks can help reduce costs significantly.

Monitoring and Adjusting Expenses:

Now, I would caution you here folks. It's crucial to continuously monitor your expenses and make necessary adjustments.

Optimizing Resource Allocation:

What else can we do? Optimize resource allocation and make the most out of what you already have.

Considering the Impact on Staff:

Everything is up for grabs when it comes to cutting costs, but be mindful of the impact it may have on your team. More burdens placed on your existing team might mean decreased productivity.

Conclusion:

So, folks, I hope you got some value from this podcast episode on cutting and managing business costs. Remember, it's all about finding the right balance and making strategic decisions. And until next week, folks, I'll see you on the other side.

Being aware of what your business costs are is an absolute essential requirement for any business owner as well as their team. In last week's I Hate Numbers podcast episode, I looked at how to develop an effective cost framework whereby we can go by challenge our costs, we can look to reduce the costs, make them efficient, deploy our resources effectively, understand when that should happen.

Spoiler alert, always how to approach it and what we need to do to make it a successful program, and tips to make sure we achieve the direction we want to. Now in this week's podcast episode, I'm going to dive a little bit deeper. We're going to look at some techniques and some tips and areas where costs can be managed and challenged, such that we can maximise our profit, ensure survivability, and actually continue to prosper and grow.

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers. Podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

Hi folks. My name is Mahmood. I'm a business finance coach, author, and tax advisor and founder of the firm I Hate Numbers. For the last 28+ years I've been helping business owners like yourself make more money, increase your financial understanding and literacy, reduce the stress and anxiety, minimise your tax liabilities

and help you achieve the business that you do by providing accounting, services, planning. And my strap line in life these days is plan it, do it, profit. Let's crack on with this week's podcast. Now as a reminder to ourselves, and by all means, please folks, check out the show notes and last week's episode

is we mustn't do any cost reduction program willy-nilly. We've got to make sure that we got fully embedded in our consciousness, what our underlying objectives are. What is our Northern Star? What is the route we wish to get to? Any cost reduction that we have to do in that respect has to help us achieve that end objective.

Now, if you've got bailiffs knocking on the door, if things are looking really quite bleak, then the approach is going to be slightly different. And your objective though is to survive to get through that. Now, within the cost that we have, we've got to remember that we have costs that are classified as good, brackets

they add value to our running of our business, to our customer experience. They generate some value that is positive in some respects, and we have bad costs. These are costs or resources that add no value to the customer experience, do not help us deliver goods and services to our customers. They're redundant costs.

And on that basis, those are the costs certainly that we put in the list of the ones that we attack, first of all. So where are we so far? Make sure you have got a clear idea what the objectives are on your cost-cutting exercise and make sure it's done such that you are still going to deliver whatever objectives you set yourself out to achieve.

So for example, If one of your objectives is to continue to provide a quality product or quality service, any cost reduction that you do has to make sure that you maintain that brand quality. Has to make sure your customers connect with you and buy that whole quality experience. So it's a bit like buying a high-quality product, a high piece of merchandise, but you're putting it in very tacky paper or plastic bags.

There's gotta be a residence. If you're a service provider, you need to make sure that the cost you are reducing do not impact on that service provision, do not dilute the quality that you're delivering to your customers, whether it's back office functions or face-to-face. The next thing you do is more practical.

You need to be aware of what your current costs are that you need to incur in order to provide and get to your Northern Star. The first port of call will be to interrogate and look at your accounting system and make sure your accounting system is structured in such a way that you can identify the nature of the cost that you've got, whether these are fixed or variable, you can identify the nature of those costs and what they're associated with.

So if they're associated directly with providing goods and services, make sure you know what they are by type. Make sure you can classify them and where possible associate those with the individual products or services that you're delivering. So make sure you've got a good understanding what your costs actually are, and it still is of no surprise to me that even in the 21st century with access to technology and expertise, many business owners still are not familiar and understand what their costs actually are.

If that sounds like you, then that's something you need to invest in, so that you need to remedy. Information is gold. By all means, drop us a line and we can help you to develop a suitable system for your business by digress. So knowledge of what's going on in terms of your costs, understand and interrogate those costs which are bad.

Those which are good. Now, certain key areas that we can investigate. Technology and automation is always quoted as an area, though. People say, that if we automate the process, we can save time, we can save labor costs. That frees up the capacity, and that's a good option to choose. Now, do not do this in isolation.

There's a famous quote by Bill Gates that says, the first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency. My advice normally is anyone who's considering automation is to have a full understanding of what the processes are that are carried out internally and externally in your organisation.

So if we look at something like the onboarding experience for clients and customers for the moment they are a stranger. The moment we onboard them, the moment we deliver services to them, to the moment we invoice them, flowchart that process. So, If you flowchart that process, you'll know the steps that we have to go through.

We can identify the activities and the resources that are needed, and thereby, when we automate, we can automate as a holistic way and not just in isolation. Automation is certainly something to be recommended. There is a cost benefit to be carried out by the cost and the time and energy to make that investment initially and the benefits that are accrued from there.

What else can we look at? Well, we can look at things such as property-based costs, so doing things like energy audits going through to find out what is consuming energy in our organisation and energy, like most other costs that we have, is fundamentally driven by two variables. How much of that resource are we using up the amount or the quantity?

As some people might describe that, that is something we can control. We can control how much heat is emitted by adjusting the thermostat. We're going to adjust the level of lighting we're going to adjust to make sure that our buildings are well-insulated. So energy consumption is certainly within our control.

The rates and the tariffs may not be so. So do an energy audit, look at what's going on, and focus your attention on the areas where the costs are more significant. Now, consciously, if we can save a few pounds here, a few dollars here and there, that compounds to be quite a large amount of money over a period of time.

However, in the short term where resources may be stretched, focus on understanding where the costs are, understanding the type and nature of those costs, and then decide your timeframe and which areas you're going to tackle first of all. Now, something of absolute critical importance here is that when you undertake a cost-challenging exercise, a cost reduction program, it's critical that you involve your team, your members of staff, as far as possible.

Imposing cost reductions on somebody can be demotivating, can be counterproductive, and your team may actually recognise where savings can be made, those opportunities for cutting costs, and share that with them. If there are cost reductions that come out by savings from the members of your team, then incentivise that by giving them a share of that saving.

Most team members would be quite happy to contribute to that cost-reduction exercise. It's a highlight of sustainability in the organisation, but there's no problem with a financial or other incentive like giving time off perhaps or some other way to reward them. But you need to involve your team at all levels. Imposing something on somebody 10 to be counterproductive.

Now when you are looking in terms of other cost savings, so you might be looking at outsourcing. Again, these are topics to be expanded on a future podcast. Outsourcing can have some immense benefits. So for ourselves, we act as outsource partners for others, and I myself outsource certain functions to freelancers, subcontractors.

So look at the nature of the activity. If it's something that's a one-off or a very sporadic activity that requires a specialised skill, there may be a justification for outsourcing that commodity, that activity. A knee-jerk reaction for lots of people when they're looking to cutting costs, it's to do a headcount.

Now, I would caution you here, folks. If you are looking to reduce members of staff to cut their hours and all the rest of it, first of all, you have to think very, very carefully. There may be a short-term win (question mark) over the salary saving, but long term that might have a negative motivational effect on your existing team.

That may have a counterproductive because it's three times more expensive to recruit additional staff than it is to keep existing staff. If things are such that you need to re-employ somebody, it's going to be much more expensive and you are losing all that expertise. Certainly an area to explore. But are there ways that we can make things more efficient?

And that's certainly something we should factor in. What else can we do? Everything is up for grabs, conversations and negotiations with suppliers of your key inputs is useful. Have the conversation. I would not recommend that you cut and burn, you slash the prices and become hardheaded. Remember, your suppliers are integral to your business, continuity to your business survival. Negotiate,

have conversation with your suppliers. They will have a vested interest in you being able to sustain yourself and grow and prosper. So have those conversations are the things you can do for buying more volume of product and perhaps saving in terms of discounts that you may get. Assuming that you've got the storage space for physical product and making sure the products aren't perishable, that is an option that you can do.

Settling your bills at an earlier day may entitle you to more discounts. There may be savings that you can negotiate there. Look at your existing contracts and leases. Have an idea when they expire. Have an idea when they get renewed, and that's the opportunity and the time you have to start negotiating with those contract holders, with those suppliers who hold those contracts and negotiate so you can get a much better deal going forward.

Now it's roundup folks here. Something to be very careful of as a reminder, do not slash and burn. I've seen far too many business owners take a carving knife to their costs, cut what they think is the highest cost, and what that means is that impacts significantly on their ability to prosper, to survive, and go forward.

They do these cost reductions without involving members of their team and workplace morale can suffer as a result. More burdens placed on your existing team might mean they're looking for opportunities to leave your firm and go elsewhere. Cutting costs down now, again, I wouldn't necessarily look at this as a negative term,

may mean that it impacts on your capacity, it may impact on your potential for growth, your potential for innovation developing employees, and that's not a good look at all. Explore your supply chain actively. Are there elements amongst there where opportunities are for saving money? Can you look at your product and can you perhaps reconfigure that?

Can you remove those features, which considered non-value added, which don't impact on the customer experience? Eliminating those will save money on materials producing, et cetera. So folks, I hope you got some value from this podcast. If you did, I'd love it if you left a comment, give it a thumbs up and share it with those people who you feel would benefit from this.

And until next week, folks, I'll see you on the other side. We hope you enjoyed this episode and appreciate you taking the time to listen to the show. We hope you got some value. If you did, then we'd love it if you shared the episode. We look forward to you joining us next week for another I Hate Numbers episode.