James Webster, Executive Chairman, ROK Financial.
When it comes to overall business health, growth and efficiency tend to be two of the key factors that many business owners will evaluate to measure success. Even a successful business can spiral quickly if not focusing on the most important health: its financial health. There’s an intricate relationship between cutting costs and maintaining the level of service you want to provide in your business.
What Makes A Business Lean?
A lean business can be identified as one that operates with the goals of maximizing profit, productivity and consumer value while minimizing expenses, overhead costs and negative effects on quality. A lean business strategically uses its resources to its advantage and doesn’t overproduce (or underdeliver). They have a good grasp on their finances and know how to keep their goals aligned with their budget. Most importantly, they know the main focus of their business and can prioritize budget allocation accordingly.
How Can I Run A Lean Business?
Keeping your business lean entails focusing on your core objectives, and then finding inventive ways to meet them while staying within your financial constraints. There are many ways to successfully run a lean business, allowing you to deliver value to your customers while simultaneously limiting unnecessary use of funds.
Here are five ways to efficiently cut costs for a lean business:
Discover practical ways to reduce costs that are frequently associated with day-to-day operations. This can be done by allocating tasks in-house to limit outsourcing work, negotiating favorable deals with vendors and suppliers and implementing strategic inventory management to avoid overstocking.
Optimize your business’s efficiency and workflow by improving operational procedures. This is most frequently done in today’s world by utilizing automation or technology integration to reduce repetitive tasks, avoid the possibility of user error and allow employees to focus on core assignments.
Strategically invest in software and technology alternatives that can increase productivity while staying within your allocated budget. This is a great way to adopt new and improved solutions for company efficiency and communication and simultaneously helps you stay competitive and up to date with industry trends.
Opt for cost-effective marketing tactics that will increase exposure and brand awareness without breaking the bank. You can maximize your marketing efforts through outlets such as social media, search engine optimization (SEO) and participating in local community events.
Potentially the most important of all is learning how to implement pricing strategies that will maximize your profit margins and increase overall revenue. It is essential for business sustainability that you understand your niche market and how your costs versus offerings can hold up with consumer trends.
Embracing Lean Principles
I once worked with a manufacturing company that hit the ground running and came to success shortly after its inception. They had great customer flow, operating multiple production lines and increasing their product offerings regularly to keep up with demand.
However, just as quickly as they rose to the top, they found themselves face-to-face with burnout and began facing challenges that put them in a profitability rut. They began to over-stock inventory, produce way too many units before the demand called for it and hindered relationships with their suppliers due to inconsistent quality. When the company began to see a downward spike in revenue, they were forced to pull back on marketing efforts, downsize the production line and even let a few employees go to reduce overhead costs.
Fast-forward, and this company is not only surviving but once again thriving. How did they do it? They became lean. They reduced inventory levels in order to improve supply management. They began to produce units on an as-needed basis, freeing up space in their warehouses and reducing product holding costs. And over time, they restored trust with their customers and vendors who had begun to fall off due to inconsistent delivery times and quality standards.
Not Cutting Corners
As we’ve seen, a few of the key elements in this discussion include efficiency, productivity and improvement. When making crucial changes to your business and its operations, those words need to stay top of mind. In times of trouble, cutting costs may seem like an immediate switch that needs to be flipped, but you need to look beyond the short-term focus and keep your long-term goals in mind. Here are a few indicators that your new business tactics aren’t working in your favor.
Are you saving costs at the expense of quality? Implementing strategies such as downgrading supplies, eliminating staff and overworking those who remain and working around product or service regulations can result in compliance and satisfaction issues.
Saving costs in one area of your business may inadvertently increase costs in another. Make sure you’re looking at the whole picture and keep an eye on your business’s overall finances when implementing large budget adjustments.
Don’t lose sight of your core values. Business strategy should improve when cutting costs, not decrease. If your long-term objectives don’t align with your short-term fixes, you may find yourself derailing.
Your employees are at the forefront of your company and often can provide valuable input on the day-to-day running of your business. Consider consulting them when making operational changes that may directly affect their roles.
If you begin to see an uptick in product returns, poor reviews or customer complaints, you may want to consider reevaluating any changes you’ve recently made that directly affected the quality of your products and services before you lose customer trust and market share.
Final Words On Achieving Success
Every business will find itself going down a unique path when it comes to switching over to lean tactics. First, one must have a strong understanding of their business and what exactly is making it unsustainable. By assessing current processes, brainstorming potential solutions and swiftly acting to implement them, a business can reach its full potential while uncovering new opportunities for growth and innovation.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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