In the world of business, success is rarely an accident. It stems from strategic planning, meticulous execution, and the cultivation of good habits. For entrepreneurs, owners, and CEOs, building a disciplined approach to financial management can mean the difference between thriving and merely surviving. I will share disciplined strategies to help you achieve better economic results by focusing on one topic each week.
The Power of Good Habits
Mahatma Gandhi once said,
“Your beliefs become your thoughts,
Your thoughts become your words,
Your words become your actions,
Your actions become your habits,
Your habits become your values,
Your values become your destiny.”
Successful companies do not stumble upon success by chance. They follow a strategic plan rooted in their habits and values. These habits, in turn, drive their overall performance and prosperity. Let’s explore some strategic habits to develop and implement within your company.
Analyze and Control Soft Costs
Soft costs are expenses that are not directly tied to the production of goods or services. These include administration, legal fees, travel, and other pre- and post-sales expenses. The single most significant expense in most companies is payroll, but fewer companies invest the same amount of time and energy in analyzing soft costs.
Financial statements reflect the past; they show what has happened. However, to ensure a financially sound future, you must scrutinize every cost in the future. Avoid the “use it or lose it” trap with budgets. Every expense should be validated as essential; anything outside of that should be eliminated.
Use or Lose Your Budget
The concept of “use it or lose it” is prevalent in many organizations. Managers may feel compelled to exhaust their budgets to maintain them for the next fiscal year. However, this practice often leads to wasteful spending. Instead, consider implementing an incentive where managers receive a percentage of the budget they save. This creates a vested interest in fiscal responsibility, turning soft costs into measurable expenses that benefit both the company and the managers.
Curb Non-Essential Spending
Recessionary periods often reveal unnecessary expenditures. Delaying purchases like computer upgrades and office furniture can result in significant savings. Reducing employee benefits is another way to trim the fat, although it should be done thoughtfully to maintain morale. Investing in products and services that offer a quick return on investment (ROI) can also help. For example, opting for energy-efficient equipment can reduce long-term costs.
Get Rid of the Supply Closet
Managing inventory effectively is a secret weapon for cost savings. Excess non-essential goods often accumulate, leading to wasted resources. By minimizing inventory on hand and implementing inventory management practices, you can reduce overhead costs and free up capital for more critical investments.
Negotiate Supplier Concessions
Negotiating better terms with suppliers can lead to substantial savings. By consolidating your spending and committing to a specific volume over time, you can leverage your purchasing power to obtain discounts. Formalizing this process with suppliers through RFQs (Requests for Quotations) or reverse auctions can yield significant cost reductions.
Ask Your Suppliers for Advice
Suppliers can be a valuable source of business insights. Engaging them in discussions about cost-cutting measures and demand stimulation can provide fresh perspectives and innovative solutions. Building strong supplier relationships ensures mutual benefits, particularly during challenging economic times.
Innovate and Use Your Savings to Fuel Growth
Innovation is a critical component of business success, especially during economic downturns. Companies that continue to innovate can capture market share and stay ahead of the competition. Reinvesting savings from cost-cutting measures into new products, services, and markets can lead to sustainable growth.
Implement a Cost-Cutting Tool Like e-procurement
An e-procurement system can help enforce new cost-saving policies and streamline business processes. It allows you to monitor spending, enforce budgets, manage inventory, and negotiate better prices with suppliers. By automating these functions, you can achieve significant savings and improve operational efficiency. According to a study by the Aberdeen Group, introducing e-procurement can save an average organization 5% on its purchases.
Conclusion
Good financial discipline is a product of good habits. You can build a financially resilient organization by analyzing and controlling soft costs, curbing non-essential spending, negotiating supplier concessions, and leveraging innovative tools like e-procurement.
Book a consultation today if you’re ready to take the next step in establishing good financial habits. Let’s build a future of economic success together.