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3 Practical Tips that Small Businesses May Use to Reduce Their Operating Costs

Categories: Finance Online
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Business team in a meeting

Business team in a meetingThe major challenge facing small- and mid-sized businesses is securing capital. Lending institutions opt to provide financial assistance to already established businesses since there is a higher guarantee of repayment. The institutions often raise the interest rates in an aim to discourage small businesses from borrowing.

1. Floorspace Utilization

Acquiring an office within a major city costs more than having it on the backstreet end of a quiet town. Businesses hoping to occupy offices on busy streets must be willing to utilize the office spaces. There are several companies that rent out workspaces in NYC that such businesses may rely on. A business must occupy the smallest space possible while still maintaining efficiency around the office.

2. Efficient Use of Resources

With finances being a major challenge, the efficient use of available resources becomes the most practical solution. That means that a business may only purchase the required equipment. Any extra pieces of equipment may have a negative impact on other expenses such as rent and power bills. Examples include the sharing of scanners, printers, and photocopiers among people in the same department.

3. Outsourcing Functions

Small businesses may find it expensive to establish fully operational departments such as the finance and accounting departments. In such situations, they may opt to outsource various functions in an aim to reduce their operating costs. It may be cheaper to hire an accounting expert to come and reconcile all the books of accounts once every month as opposed to having a full accounting team on your payroll. The same applies to IT consultant services.

According to the product life-cycle model, a new product experiences low sales and growth rate in its introductory stage. Assuming that the product has been introduced by a new business, it means that its revenues are also low. As such, the only way of earning profits is by reducing costs.