Balance business costs with income and prosper …even in tough times

sbBusiness owners who achieve success understand that staying prosperous in challenging times is a delicate balancing act. Those who pay attention to the basics are the most likely to survive, and even increase their market share when times are tough.

So says Ravi Govender, Head of Small Enterprises at Standard Bank, who points out that tough times for consumers usually mean very tough times for small businesses – a fact often referred to by the finalists in the Standard Bank-supported ‘Think Big – Building Champions’ TV series, currently airing on SABC 3.

“Many small business owners become so focused on running their businesses that they lose sight of the fact that controlling costs and finances should be a part of their everyday routine.  This becomes especially vital when tough times occur.”

“With South African consumers facing increasing cost pressures and spending less, entrepreneurs should concentrate on several basic issues,” says Mr Govender.

These include:

  • Reviewing business expenses. Increased efficiencies, no matter how small, can all contribute to a leaner, more effective business. Key considerations are:
    – Re-looking basic costs such as telephone and stationery bills.
    – Taking positive steps to cut down on energy costs. Simply switching off lights and office equipment at night can contribute to a healthier business budget.
    – Using web conference facilities for client meetings instead of making long trips – something that eats budget and management time.

Always important to bear in mind is that when cutting costs, the areas impacted must be realistically assessed so that they do not cut into essential operations. This can be achieved by:

  • Making sure that you know exactly what the bottom line is. This helps to quickly identify areas where costs are increasing so that they can be addressed. Having the right systems in place will help will this crucial financial function.
  • Monitoring margins. A true return/margin is sales minus variable costs minus the cost of collecting the money. Attention should be paid to collecting money owed to the business if effective cash flow is to be maintained.
  • Getting stock into your store just in time to sell it. Having too much stock means that you may be paying too much for storage space. Stock sitting on shelves once it has been paid for is also expensive. Getting your stock controls right means that the time between accepting goods and selling them is reduced. More money then remains in the business for other purposes.
  • Doing the sums regarding employees. An employee is efficient when the revenue he or she brings into the company increases. Checking who is adding value will enable you to structure your business correctly and replace those who are unproductive and ultimately costly.
  • Considering outsourcing. It may not be necessary for all functions to be controlled by full-time employees. Outsourcing functions can reduce costs and increase productivity.

“When it comes to balancing costs against productivity and profits, there is much to be said for communicating with employees, suppliers and customers. Open discussions will help identify bottle-necks within the business, and also reveal which products sell and which don’t.”

“Suppliers can also tell you of their experience in your market, and help identify products that sell well in other markets similar to yours. If you don’t stock some products, your business could get a boost just by changing ordering patterns.”

“The bottom line is that the business owner who is aware and proactive will always survive and prosper, even when times are bad,” says Mr Govender.

Press release by Magna-Carta.

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