Recessions and periods of economic downturn can severely impact businesses.
Take the recent pandemic for example—countless ventures in tourism, hospitality, and retail have shut down because they were inadequately prepared for the market changes. Big and small, the recession spared no company.
While we can't control macroeconomic events, it's important to focus on what you can control. You are still the captain of the ship that is your business, and you should try to the best of your abilities to keep it afloat.
Here are five useful strategies that you can apply to reduce your business’s spending more efficiently.
1) Adjust Your Yearly Budget
Once a business starts to scale, the operations and financial situation will become more complex. Many small to medium-sized businesses tend to keep the system that has worked for them in their initial stages. But if the business experiences unprecedented growth in its small-scale system, it may reveal problems and gaps that would be harmful to keep in the long run.
Therefore, the first thing a business owner should do is review their firm's financial health. Conserve resources by identifying which expenditures can be reduced or eliminated. Track this information alongside the current market trends and analyse what are the best steps moving forward.
Once these problem areas are identified, you can more easily call the shots that need to be called. For instance, you can cancel underutilised software subscriptions, or reduce the number of employees if necessary.
By keeping the budget in check, businesses can not only save money but also gain greater financial insight into their operations. More control in this part of the business can preserve your capital by funnelling your cash flow into things that actually matter.
2) Delay Unnecessary Purchases
Are your office computers due for an upgrade soon? Do you plan on replacing your corporate vehicle with a brand-new one? While these things would certainly help make processes more efficient, these are the type of investments you should defer until things improve.
While relying on old equipment can be troublesome, it's important to be conservative with your capital, especially during periods of recession. Sacrifices have to be made to keep the business afloat, even if the recession doesn't seem to be making a huge dent yet.
Once the economy is on more steady ground, and if your business looks to be on the uptrend, then you can consider making these necessary upgrades.
3) Cut Labour Costs
If push comes to shove, a cost-cutting process that you'll have to seriously consider is to lessen your labour spending.
This is most effective if there's a fraction of the workforce who aren't assigned to tasks or are redundant in the company.
You don't have to lay them off or give staff a pay cut directly. And really, this should be the last thing businesses should do if they want happy employees.
A more strategic approach to reducing labour costs is eliminating employee benefits that are not being fully utilised.
For instance, if you have a gym membership for each employee, consider getting rid of this benefit first. If they have a food allowance, consider decreasing it ever so slightly until your revenue starts to ramp up again.
You'll need to be prepared to make financial sacrifices for your employees. Every business's operations are different, and if layoffs are necessary for a business's survival, then that can be resorted to ensure your business stands on its feet.
4) Move to A New Office
Many businesses thrive and earn money, scaling at a steady rate month on month. But even the savviest entrepreneurs can overestimate their office space, leading to them paying pricey rental fees every month.
If your commercial office rental fee costs over 20% of your monthly business income, consider relocating your office. You don't have to do it immediately; simply scout for possible office spaces in a lower-cost area and see if it fits your business's needs.
It's also important to consider the effort that goes into office relocation. If your business has a good projected future and if the price is right, it may very well be worth considering. Otherwise, you'll have to internally weigh the pros and cons of the move.
Once you've decided to move, consider consulting business relocation services with Muval to help facilitate the move to your company's benefit.
5) Be Open To Innovation
Historically speaking, companies that play by the same rulebook year after year are prone to get left behind. Blackberry and Nokia are perhaps the most popular victims of this philosophy, getting swept by newer, more innovative players in their industry.
This doesn't mean you should cut all operations and heavily invest in new innovative products for the recession. You simply have to have an open mind in using this new generation of systems to help you run your business.
For business owners, analyse all of your processes and ask yourself, is there a way the company can do this better? Is there a way the company can expend fewer resources for the same amount of output?
If there is, don't hesitate to invest in technology that can help you get there. This could be anything from transitioning to cloud storage, using no-code website builders, or automating mundane tasks.
Doing these things not only allows you to spend less on labour and inefficient processes, but it also future-proofs your business. It also allows the strategic minds of the business to focus on the more important matters.