Small expenses and costs may not seem big on an individual basis. However, they can add up to a significant amount and have a huge impact on cash flow for your business. Take the following tips into account for your cost-reduction strategy will save you a lot of money long term
Blanket Orders for Consumable Products
This can be considered as one of the most popular and easiest approaches to save money for your business. Companies will order in large quantities for all products that the business consumes regularly such as office supplies so they can get a better offer from suppliers.
However, for SMEs, having space to store the products can be a struggle. This is why blanket orders are useful. A blanket order is a purchase order in large quantity but can be delivered on different dates over a period of time. This way the company can still get the best offer from suppliers but not having to worry about running out of storage space.
Revisit Your Budget Regularly
SMEs must use their budget effectively. To do that, you need to review your budget regularly. While a large percentage of companies only have their budget reviewed quarterly or annually, the reality is that it is better for your business to manage your cash flow if you review and revise the budget in real-time.
By being on top of your budget and periodically analyzing all company expenses, you can minimize the risk of overspending and can cut costs on unnecessities. Cutting small unnecessary expenses can add up to large savings in the long term.
An up-to-date budget enables your business to be more proactive in managing your cash flow and strategically identify what needs to be achieved before the next budget review.
Outsource Corporate Functions
Having employees to get work done is essential to any business operations. However, employee costs from salaries to insurance to non-money compensation to office space can take up a huge portion of any business's budget, especially SMEs.
Some SMEs, nowadays, choose to keep their full-time employees at the minimum and outsource works that their employees cannot cover to external contractors. They can negotiate with contractors to get a lower rate for the service but still benefit from the contractor's areas of expertise.
Have an Effective Financial Forecast
People usually get confused between a budget and a financial forecast.
Budgeting is the process of planning business expenses and setting revenue targets for a particular period while a financial forecast analyzes the budget targets and uses the historical data to predict whether the set targets are achievable or not.
Budget and forecast must work together. A forecast is used to build a budget and help to identify how money should be allocated to different areas of the business. Without a budget, the forecast has no real target to analyze.
An effective financial forecast can help businesses to:
Have better control over their cash flow so they have more flexibility in terms of making business and investment decisions.
Keep track of their financial operation to make adjustments when necessary so they can achieve their goals
Have a strong validation for financial funding because a financial forecast indicates a company's financial health and shows the direction that a business is headed in the future
However, building a strong financial forecast is never easy since it requires a professional with extensive knowledge and experience in accounting and finance to build one. This might be a dilemma for almost all SMEs because it's usually over the budget.
Choose the Right Entity Structure for Your Business
The type of legal entity structure can either make or break your business. Is it that serious? Yes. Each business structure has its own ways of operation, different obligations in terms of payment of taxes, and different liabilities. Therefore, to secure the maximum amount of your hard-earned money, you need to choose the right and most suitable legal entity structures for your business.
However, having a throughout understanding of different business structures as well as their pros and cons to pick the most suitable one might be a hassle for most business owners as requires a lot of time and effort to do dive-deep research to gain enough insights on different entity structures.
Among the four above-mentioned tips that can help your business to save money, having a strong financial forecast and choosing the right entity structure are the foundation that can help your business to save money in the long run. However, they are quite challenging since they both require a high level of expertise to get it done right.
Understanding that not all SMEs business owners have the time to dive deep to understand different entity structures nor have enough budget to hire a full-time CFO to build a financial forecast. We are here to help. We can be both your trusted advisor with extensive experience in consulting the most appropriate entity structure and a CFO to build an effective forecast for your business. Have a chat with us on how we can support you and then you only need to focus on what you do best.