During the first few years of a new business, a lot of emphasis is placed on growth and development without much thought to efficiency. As a business grows, the cost of this oversight can really mount up over time, causing unnecessary waste. Financial directors are typically concerned with budgeting and forecasting, but it's important to ensure that cost reduction stays on the agenda before it reaches a crisis point.
In many business cultures, cost reduction strategies are regarded as last-ditch measures intended to pull a company away from the brink of financial collapse. According to data from a recent study by Accenture, just 6% of Chief Financial Officers considered cost reduction to be a priority in the past year, despite the fact that the same study suggested that nearly 1 in 4 CFOs expect their companies to eventually cease to exist in their present forms.
With a bit more emphasis on cost reduction and efficiency, it may be possible to survive any upcoming disruptive startups and grow sustainably in the long term. With that in mind, let's look at some basic cost reduction strategies that can be implemented immediately.
Set clear goals.
Before starting any program of cost reduction, it's important to establish exactly what the goal of the process is. However, this doesn't mean that 'reduce costs by 8% throughout the company' is a viable tactic, because general reductions tend to degrade the efficiency of the business as a whole. Targeting specific areas for reduction or elimination is a much better strategy, and one that allows for a redefinition of the overall business towards those areas that provide the most value.
Aim for simplicity.
The organic growth of most young companies creates a great deal of unnecessary complexity when it comes to their basic structure. While it can be painful in the short term to uproot existing practices, it is often essential to ensure the long term profitability of the business. Automating processes with software can dramatically reduce administration costs and profit loss due to inefficiency, and can free up resources for more effective allocation. Above all, avoid redundancy and keep things as simple as possible.
Communicate your strategy effectively.
Despite being the one tasked with handling financial matters for the business, it can be difficult to persuade other stakeholders of the necessity of cost reduction plans. Communicating the goals and methodologies of your reduction plans to all those involved will make the entire process go much more smoothly.
Work with real-time data.
The more you automate and digitise your internal processes, the more data will be available. A carefully planned IT solution can put all the financial details of the business at your fingertips in real-time, allowing for extremely rapid and well-informed decision-making. Knowing how your business spends money is essential to highlighting additional areas for cost reduction, and the accuracy and immediacy of your available data is crucial.
Take the long view.
Cost reduction strategies are still regularly viewed as placatory measures intended to calm the waters during periods of economic instability, but in order to be effective they should be incorporated into the long term strategy of the business. When new processes are being designed, they should be examined with an eye towards cost reduction at the very outset, ensuring that drastic measures will never need to be implemented as a crisis management tool.
Above and beyond that, it's important to regularly revisit the idea of cost reduction strategies to determine if any new advances in technology or other processes can provide a valuable reduction, ensuring that the company will stay lean and competitive for the future.
In many business cultures, cost reduction strategies are regarded as last-ditch measures intended to pull a company away from the brink of financial collapse. According to data from a recent study by Accenture, just 6% of Chief Financial Officers considered cost reduction to be a priority in the past year, despite the fact that the same study suggested that nearly 1 in 4 CFOs expect their companies to eventually cease to exist in their present forms.
With a bit more emphasis on cost reduction and efficiency, it may be possible to survive any upcoming disruptive startups and grow sustainably in the long term. With that in mind, let's look at some basic cost reduction strategies that can be implemented immediately.
Set clear goals.
Before starting any program of cost reduction, it's important to establish exactly what the goal of the process is. However, this doesn't mean that 'reduce costs by 8% throughout the company' is a viable tactic, because general reductions tend to degrade the efficiency of the business as a whole. Targeting specific areas for reduction or elimination is a much better strategy, and one that allows for a redefinition of the overall business towards those areas that provide the most value.
Aim for simplicity.
The organic growth of most young companies creates a great deal of unnecessary complexity when it comes to their basic structure. While it can be painful in the short term to uproot existing practices, it is often essential to ensure the long term profitability of the business. Automating processes with software can dramatically reduce administration costs and profit loss due to inefficiency, and can free up resources for more effective allocation. Above all, avoid redundancy and keep things as simple as possible.
Communicate your strategy effectively.
Despite being the one tasked with handling financial matters for the business, it can be difficult to persuade other stakeholders of the necessity of cost reduction plans. Communicating the goals and methodologies of your reduction plans to all those involved will make the entire process go much more smoothly.
Work with real-time data.
The more you automate and digitise your internal processes, the more data will be available. A carefully planned IT solution can put all the financial details of the business at your fingertips in real-time, allowing for extremely rapid and well-informed decision-making. Knowing how your business spends money is essential to highlighting additional areas for cost reduction, and the accuracy and immediacy of your available data is crucial.
Take the long view.
Cost reduction strategies are still regularly viewed as placatory measures intended to calm the waters during periods of economic instability, but in order to be effective they should be incorporated into the long term strategy of the business. When new processes are being designed, they should be examined with an eye towards cost reduction at the very outset, ensuring that drastic measures will never need to be implemented as a crisis management tool.
Above and beyond that, it's important to regularly revisit the idea of cost reduction strategies to determine if any new advances in technology or other processes can provide a valuable reduction, ensuring that the company will stay lean and competitive for the future.
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