How to Reduce Operational Costs

If you're serious about outsourcing to reduce costs, do your due diligence and find qualified individuals or firms to work with.

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By Thomas Smale


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Virtually every business has ongoing operating costs. And while it may be possible to keep your costs low by working virtually, this option simply isn't available to every business. It may not be for yours: You may need a physical space and full-time staff.

And as your workforce and need for space grows, you may have no choice but to expand, move to a larger office space or rent additional storage and space.

Related: 4 Security Questions to Ask When Outsourcing IT Operations to Make Sure Your Business Isn't at Risk

Still, even if you can't go 100 percent virtual, there are, fortunately, ways of optimizing and reducing operational costs. Here are four strategies.

1. Outsource

Many businesses outsource tasks to be handled by an outside contractor or team. Since you can outsource tasks to skilled workers across the globe, you can save on labor and still get quality work delivered.

Outsourcing can also take the form of managed services and customized-office or filing solutions for businesses.

Fileminders has helped many companies, organize and manage their sensitive records and documents. For example, according to a case study about Hellenic Bank, the bank was suffering from a lack of space due to an overflow of records. Fileminders helped the organization:

  • Relocate and index documents.
  • Develop a shredding solution to avoid the theft of sensitive information.
  • Digitize itsdocuments.
  • Implement document-management software.

Outsourcing isn't always as straightforward as it sounds. You still need to find good talent and cultural fit, just as you would do when building your in-house team. If you're serious about outsourcing to reduce costs, do your due diligence and find qualified individuals or firms to work with.

2. Put in systems.

Some businesses lack clearly defined processes that enable them to run more efficiently. The consequences can be substantial. In most of these cases, business owners end up spending more on employees. They hire more employees than they need. The employees make mistakes in their work because of a lack of established protocol and they defer all questions to the business owner, even if they've personally handled those problems before.

Meanwhile, you could be running a leaner operation if you had processes and procedures your team members could follow.

Take the example of Patrick Campbell, co-founder and CEO of Price Intelligently. According to his account on the company website, he built a business that earns millions of dollars annually with help from a small team, and he credits his success to his implementation of more processes and systems in his business.

Related: First Steps: Writing the Operations Section of Your Business Plan

Although systems need to be continually updated and refined, they can reduce the amount of time spent on training and onboarding and increase a team's overall productivity. The counterintuitive part is that you must spend time developing these systems, which itself can take time away from business development and serving clients short-term.

That's a temporary sacrifice, but oftentimes a necessary one if you have any intention of growing and scaling your business down the line. Additionally, if you're planning to outsource work to virtual assistants and contractors, systems are a must.

3. Automate

Automation sometimes works hand in hand with systemization, since making your business more efficient may require the use of SaaS apps and other technology. This technology allows you to do more with less manual involvement, which also means you can redirect your resources towards more high-level, profitable activity.

Canadian airline company Canadian North, for instance, utilized EchoVera's AP Automation solution to automate its processing of supplier invoices -- to the tune of $300 million per year according to EchoVera. This led to significant cost savings.

Technology can help you reduce your workload or make procedures more efficient, but there are a few things to keep in mind.

First, you'll need to do some shopping around. Not every solution will be the right one for your company, and you could easily end up spending more on a piece of software that may not even be the best fit for what you're trying to accomplish. Don't be fooled by flashy presentations. Understand your needs and always look for a good fit.

Second, it may be possible to negotiate with vendors to reduce costs. If you're paying per use, for instance, and you know how many times you use the service in any given month, you could ask to see if the vendor would be willing to offer you a package deal so you don't have to pay the same price for every use.

Third, less is often more. You'll want to cancel unneeded services regularly. Having more tools increases the complexity of your operations, so fewer may be better. You may even find all-in-one solutions that serve multiple needs instead of just one.

Deciding on the right tech and automation tools will depend on the exact nature of your business, but you can put a great deal on autopilot if you know how. The result will be increased productivity and less manual involvement.

Reduce your energy bill.

Energy costs can add up and eat into your profit. Office space alone can be expensive, but then you must also think about electricity and gas.

Fortunately, it is possible to optimize your energy bill. The key is to find the best energy services to serve you and help you create a tailored solution.

Tom Bowman, founder and president of Bowman Design Group, took a small creative services company and reduced its emissions by 65 percent and cut its electricity costs by 40 percent. With the help of an energy consultant, he took numerous steps to achieve this result, including: trading in the company's SUV for a Prius, replacing the copier with a more energy-efficient machine and installing a new air conditioner and so on.

The steps to reduce your energy bill may be simple. But the savings can add up quickly, because you'll keep more of your profits month after month.

Final thoughts

If you're overwhelmed and unsure where to start, the first thing to do is to create a list of all your expenses. Lay it all out and find out what is costing the most. Also, don't forget to look at the greatest inefficiencies in your business.

Chances are good that if you eliminate bottlenecks in your processes, you'll see your costs go down. Many business owners find that they themselves end up being the biggest bottlenecks of all, because everything must go through them.

Related: 5 Things Sucking the Life Out of Your Retail Operations

So, use outsourcing, delegation, systemization and automation to take low-level tasks off your plate and begin leveraging tech and personnel so you can focus on the most important aspects of your business.

Thomas Smale

Entrepreneur Leadership Network Contributor

Founder of FE International

Thomas Smale co-founded FE International in 2010. He has been interviewed on podcasts, blogs and also spoken at a number of industry events on online businesses, exit strategy and selling businesses.

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