Cost Reduction Tips For Businesses

Whether you run a big company or a small business, there will be operating expenses. It is a large category of costs which will be the first to be reduced in order for a business to survive in the long-term.

When unexpected disasters hit, such as the COVID-19 pandemic, cost-cutting measures become a necessity and not just a matter of being frugal. Cutting expenses down isn’t easy, as it requires creativity and trying out new things.

The typical go-to solution for most businesses is to slash their headcount, but there are other ways as well. This article shares some ideas for tough times and some tips that are also applicable during better times.

What are operating costs?

Other similar terms are operating expenses, operational expenses, operating expenditures, operational expenses or OPEX. They are the costs required for the day-to-day function of a business.

Examples of operating expenses include:

  • Office rental or monthly instalment
  • Manpower costs
  • Employee benefits
  • Sales commissions
  • Depreciation
  •  Amortization
  • Maintenance costs

Utilise every available government scheme

Deputy Prime Minister Heng Swee Keat announced additional measures to help Singaporeans through the COVID-19 crisis on 17 August 2020. The measures are:

a.  Extension of Jobs Support Scheme

The Jobs Support Scheme (JSS) helps companies in the hardest hit sectors (aerospace, aviation, tourism sectors) to retain jobs by covering a percentage of the workers’ salaries up to March 2021.

b.  Jobs Growth Incentive (JGI)

JGI is meant to help sectors that are doing well, i.e. the biomedical sciences, financial services, and ICT sectors. It will support firms in the hiring of local workers through a shared salary scheme.

c.  Extended COVID-19 Support Grant

The COVID-19 Support Grant was introduced to help Singaporeans who are unemployed or suffered significant income loss. It was extended to December 2020. From October 2020, existing and new applicants can apply for the grant.

d.  Extension of Workfare Special Payment

The eligibility criteria for the $3,000 Workfare Special Payment has been widened to include those who:

  •   were not on Workfare last year but have received Workfare
  •   will be receiving Workfare for work done this year

Freeze headcount

There may be situations where a position has been offered to a new employee but the person has yet to step foot in the company. When times are tough, one has no choice but to defer this person’s joining date. Freezing headcount is the first sensible thing to do.

Instead of just releasing the guillotine on ‘x’ number of full time staff to cut cost, assess the manpower which is essential to the business. Then, redeploy additional workload to those who are able to multitask.

Use in-house talent

Some businesses may have hired many contract or temporary employees. These should be released from employment to protect permanent staff.

Remaining full-timers then have to go all hands on deck to take over the scope of the contract and temporary workers. This may be tough and hard work, but it beats making quality full timers redundant.

Shorten the work week

 As advised by Jobstreet, it should not exceed over 3 days a week for longer than 3 months. Employees salaries should be prorated accordingly. This step should be implemented only after managing staff expectations.

Schedule no-pay leave

Being unemployed during lean times is the least desired option. Asking employees to use up annual leave or take unpaid leave can help to stave off retrenchment as long as possible.

Freeze salary raise and other benefits

It makes financial sense to hold payout of bonuses, increments and allowances when the company is struggling to stay afloat.

Reduce staff wages

The Singapore Government recommends that management teams of firms lead the wage cut by example. The recommended wage structure is 70:10:20, with 10% being the monthly variable component (MVC).

If employees’ salaries fall below 75% of the gross monthly salary for local employees or below 75% of the basic monthly salary for foreign employees (for at least 10 employees), the company is required to inform the Singapore Ministry of Manpower within a week of implementation. 

Revamp healthcare benefits

Singaporean workers should know by now from the retrenchments in 2020 that one cannot depend entirely on employers for health insurance coverage.

Group company insurance plans can also be a hefty bill for a business. More often than not, it is not fully utilised. A firm can lower its financial burden by encouraging employees to take ownership of their own insurance plans.

There are many insurance policies out there which cover healthcare, disability, savings and personal accident in a single plan.

Share the cost of work space

With work-from-home becoming a norm, and a possible necessity again in future, having a large office becomes a waste of money. A great way to save on rental cost is to share the space with another company. This can even apply to shops, restaurants or warehouses. For example, a retail store selling clothes could rent a corner out to a manicurist.

Cut down on or cut off maintenance cost

Regular cleaning services in the office is an additional expense that is really unnecessary. If finances are tight, everyone at work can cooperate and chip in to keep the place clean. At the most, hire a cleaning crew only to the heavier duty tasks such as vacuuming the entire premise.

Eliminate ‘luxury’ expenses

A monthly staff party and a corporate gym membership are examples of ‘luxury’ when a company is trying to stay afloat. If such luxuries are removed for the staff, it should apply to the top management as well to avoid feelings of discontent.

Cut down utility costs with passive energy-saving steps

a.  Reduce the temperature of your workspace by using cheap blackout curtains. These do not cost much and can last a long time while reducing the load on the air-conditioning system.

b. Switch off non-essential lights, appliances, devices and machinery after work hours. Make it a rule for all to follow.

c. Unplug unused electronics. This will also extend its lifetime and reduce chances of breakdown.

d. Keep the lights off for rooms that are unused.

e. Use natural sunlight in rooms where it is possible and sensible.

Save money by bartering with other businesses

If you are cash-strapped but you still need to do business with your supplier or vendor, why not barter? Instead of exchanging cash, a product or service of equivalent value can be exchanged. It’s a win-win solution for both companies.

Pool resources with other firms

There is strength in numbers when buying supplies, inventory and equipment. You can reduce recurring costs by pooling resources with other small businesses in similar trade areas.

When you buy as a group, you can afford to buy in bulk, i.e. higher up in the supply chain where it is likely to be cheaper. A trade association or local business network will be able to bargain for better prices too. For short-term use resources, such as expensive machinery, consider borrowing or renting.  

Outsource corporate services

If you cannot afford to have many employees, one of the ways to cope is to outsource the following corporate services:

  • bookkeeping
  • payroll processing
  • administrative tasks
  • corporate tax
  • company secretary

 Outsource IT operations and software development

IT professionals command a relatively high salary. The infrastructure can also come at a high cost; for example, servers, networks and software.

Instead of spending all that money to operate a department that serves only a supplementary role in your firm, outsource it all to an IT specialist located within the country or abroad, such as in India.

Outsource lead generation

There are plenty of agencies which can bring in leads. The avenues for leads can be through social media platforms or Search Engine Optimisation (SEO). Being specialists in their fields, such agencies may bring in better results than in-house talent.

Outsource customer service work

Similar to IT outsourcing there are businesses dedicated to offering customer service. Customer service work is very manpower intensive. Engaging an agency to take up the work may be more affordable and efficient than having an in-house team.

Outsource ad-hoc work to freelancers

As the world moves toward the trend of home offices and entrepreneurs, there is a huge pool of talents to be tapped at far lower prices than engaging a corporation for the same service.

Certain types of work which require less specialist knowhow such as labour and table-waiting can be given to freelancers on an hourly basis. Freelancers or independent contractors can save a business a lot of money.

Employ interns

There are many undergraduates looking for internships. They will do anything to work in a company for some experience and to fulfill their educational requirements. Some fresh graduates may be willing to start off as interns.

Reduce paper consumption

  •   Reuse paper by turning them into notepads
  •   Reduce margins and shrink fonts of in-house documents
  •   Programme your printer or copier to print both sides of a sheet by default
  •   Use secure electronic file exchange services instead of traditional courier services

Digitise where possible

Use free online communication tools to keep in touch with staff who are working remotely. Cut down on printing whenever possible. Printing maintenance and ink cartridges are costly. You can save on ink by setting toner intensity at a lower percentage.

Utilise the dozens of online systems and software to automate smaller business functions such as invoice generation, accounting, website hosting, marketing communications and keeping track of stocks. 

Allow staff to work from home

This not only saves time wasted in commuting but also lowers electricity and water usage at the office. It cuts down the space needed to house them and allows a business to operate in a much smaller premise and save on rent.

Buy second-hand

If you are on a tight budget, buy these pre-loved instead of new:

  • Vehicles
  • Furniture
  • Pantry stuff
  • Storage equipment
  • Printers and copiers
  • Assembly and packaging equipment
  • Refurbished smartphones, tablets, and laptops

Consolidate corporate credit cards

Some credit cards offer more discounts and perks for more business-related expenses and travelling. Having just one or two corporate credit cards can consolidate any points earned better than having multiple cards with points spread out thin.

Design your workspace more efficiently

Have multiple purposes for rooms. For example, a large conference room that can be split into smaller spaces.

Incorporate energy-saving fixtures and appliances in the design. Energy-saving light bulbs may cost a little more than the normal ones but in the long-term, they will save money on electricity.

Tropical countries like Singapore rely heavily on air-conditioning, which bumps up the energy bill quite a bit. Opting for programmable or smart thermostats can help to cut costs.

Review expenses regularly for inefficiencies

Keep track of expenses so that they can be reviewed regularly. This can help to improve expense cutting in a way which will not affect the efficiency of a business.

Wrap Up

Each company has a different business nature, so not all the tips in this article may be applicable. Nonetheless, some of them are quite likely to be relevant to any kind of business entity.

Disclaimer: The information contained in this blog is for general information purposes only and is not intended as legal advice. While we endeavour to provide information that is as up-to-date as possible, Intime Accounting makes no warranties or representations of any kind, express or implied about the completeness, accuracy, reliability, suitability or availability with respect to the content on the blog for any purpose. Readers are encouraged to obtain formal, independent advice before making any decisions.

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