Cut business costs without cutting corners: Strategies for owners and CEOs

Navigate
Mar 12
4 min read

Updated: May 27

Two cranes holding up dollar symbols as if they were weighing or balancing the costs.

Almost daily, we're asked how to best cut business costs safely.

The reality is that, In today’s competitive landscape, maintaining healthy profit margins often hinges on your ability to control costs. However, indiscriminate cuts can hurt productivity, quality, and employee morale.

Striking the balance is key (but not easy.)

We thought we’d take the time to give our view on some of the ways that business owners or CEO’s reduce expenses while considering practical ways to mitigate risk to ensure that you preserve - or enhance - operational effectiveness?

Manage cost of sale through renegotiating vendor contracts to create win-win outcomes.

Strategy: Review existing supplier agreements and negotiate better terms - bulk discounts, extended payment periods, or value-added services at no extra cost.

Potential Risk: If not approached in a partnering way, your key suppliers may feel they are forced to reduce service levels or quality to achieve your aims.

Mitigations: Consider options to enhance the partnership. For example, you could manage your ordering into frequencies which help the supplier. You could also increase order quantities of fast-moving lines of products or even work with the supplier to clear some of their slow-moving stock (where it suits you).

Whatever you do, make sure you establish clear performance metrics and include Service Level Agreements (SLAs) in renegotiated contracts. Ideally, periodic quality audits should be undertaken to ensure compliance.

Outsource non-core functions

Strategy: Since the pandemic, and even before, employee salaries have continually grown. One result is that businesses may need only to employ key roles and outsource others.

Roles like finance, IT support, or other task/rules-based positions can be outsourced to specialised firms that can deliver at lower cost due to economies of scale.

In certain circumstances, customer service can be outsourced. However, we rarely advise companies to do this as the client relationship is absolutely key and, if damaged, it’s very difficult (and time-consuming) to repair.

Potential Risk: Outsourcing can present challenges in maintaining consistent quality.

Mitigation: Choose partners with proven track records, establish clear SLAs, and maintain regular performance and quality reviews to ensure standards are met. That way, businesses can often achieve higher consistency and scalability than with internal teams alone.

It also creates a valuable opportunity to enhance standards by selecting partners who specialise in delivering best-in-class outcomes.

An image of a home work environment low lit (by lamplight and computer screens)

Leverage Group Purchasing Organisations (GPOs)

Strategy: Industry-specific and general GPOs exist to pool buying power with peers and secure lower rates on common supplies. In a number of cases, and for several of our current clients, they provide benefits on non-core expenses such as fuel, EFTPOS rates, insurance in certain cases, and other expenses which positively and directly impact the bottom line.

Potential Risk: Membership with these organisations has a monthly cost, but it is usually minimal compared to potential savings.

Mitigation: There really isn’t much mitigation required here, other than ensuring you don’t damage a current supplier relationship by switching to purchase through a GPO. Ensure that these relationships are managed sensitively.

Debt servicing & financing costs

Strategy: Refinance high-interest loans or consolidate debt to reduce monthly obligations. Use surplus cash to pay down expensive debt strategically.

Potential Risk: Beware of prepayment penalties or impacting cash flow reserves.

Mitigation: Monitor credit covenants and preserve access to all lines of credit.

Leverage AI

Strategy: Safely and appropriately implement AI across your business.

Potential Risk: There’s clear risk and it’s two-fold – data privacy and the strong recommendation (requirement, really) to fact-check everything that AI LLMs produce. Implementation without understanding also creates enormous risk.

Mitigation: In today’s world, the ability to ask a LLM to not only suggest improvements, but to then write scripts to produce those improvements, and then tell you how to implement those scripts into the relevant programs, allows unparalleled opportunity.

Ensure that there is a clear understanding of the AI functionality and capability and be sure to implement governance and checking protocols for its consistent and safe use.

So, it’s not without risk, but the reward has to be worth it.

Bright green image with computer generated house and several stacks of coins.

Adopt energy-efficient practices in this age of soaring energy prices

Strategy: Upgrade to LED lighting, install motion sensors, and consider installing solar panels to lower utility bills.

Potential Risk: Initial capital outlay may strain cash flow.

Mitigation: Seek government rebates or financing options that spread costs over time. Prioritise high-impact upgrades to accelerate ROI.

Encourage a cost-conscious culture

Strategy: Foster organisation-wide awareness by including cost-saving goals in performance reviews and rewarding innovative ideas. Also foster non-threatening understanding of the impact of high costs (this information can be valuable to staff in their own homes too.)

Potential Risk: Overemphasis on cutting costs will undoubtedly stifle legitimate investments or demotivate teams.

Mitigation: The primary aim of every organisation should be to grow income, as income simply funds the activities of the organisation. Navigate looks at a cost-conscious culture as minimising wastage by ensuring that everything you spend (including entertainment) is managed.

So, there you have it. We've worked with tons of clients to do exactly this so we know that you can cut business costs and reduce expenses without sacrificing quality or growth. By thoughtfully applying the above strategies, you can streamline operations, improve your bottom line, and sustain long-term competitiveness.

Start with one or two high-impact areas, measure results, and expand your cost-optimisation efforts gradually.