Operating expenses, or costs as we’ll define them in this blog, can often be a significant drain on a company's resources. With a bit of creativity and effort, it is possible to cut these expenses without compromising quality or productivity.
In this blog post, we will explore some of how companies can cut their operating expenses. There are several ways to save money without sacrificing quality, from energy efficiency to automating processes.
So if you're looking to cut costs, read on for some tips on doing just that.
What Are Operating Costs?
Operating costs are the expenses incurred by a business during its regular operation. A company cannot function day-to-day without spending money on these items or services. Operating costs are typically lower than the cost of goods sold (COGS) — the cost of goods and services used to produce a product or service.
Examples of operating costs are:
Read more about what operating costs are on our blog: Defining Operating Expenses And How To Manage Them
7 Ways To Lower Operating Costs
There are various ways to work around operating costs, but we think these are the most efficient and start-up-friendly options. You can combine many of these strategies to cut the most out of your business expenses while maintaining the quality of your product or service.
1. Work Remotely
As more and more businesses move towards working from home, several advantages come with it - one of which is lower operating costs. By eliminating the need for office space, utilities, and other traditional costs associated with running a business, remote work is an efficient and straightforward way to lower operating costs.
2. Don’t Buy An Office Space
If you cannot complete certain company operations remotely, look into rentable office spaces rather than purchasing an office. There are a lot of hourly or co-working office spaces, too, like Peerspace, that are perfect for meetings or small teams that need to get work done together. This way, you can split time working from home while being able to meet without breaking the bank physically.
3. Pause Hiring
Payroll consistently takes up a large portion of a startup’s budget. If expanding your team is in the pipeline, hit the pause button. Growth might be the goal, but there’s no rush in doing so if it’s going to negatively affect your cash flow.
If operations have been running smoothly with your current team, you’re already running an efficient workflow. Keep the momentum up until you have enough extra funding to dedicate towards hiring without going over budget.
4. Outsource Services
One way to lower operational costs is to outsource services. This can be done for various services, including but not limited to: customer service, outsourced bookkeeping, IT, and marketing.
Outsourcing can save your company a significant amount of money when done correctly. Small businesses and startups work with small teams. Outsourced services offer the same attributes as an in-house team member.
Automating specific processes like bookkeeping responsibilities, customer service, scheduling services, and email marketing improves efficiency and saves a pretty hefty chunk of money. Most software built for business functions has customizable options and integration options if applicable.
5. Identify Inefficiencies
When a process takes longer than it should, inefficiencies build within your business. Look for bottlenecks in your workflow. When processes are bottlenecked, employees spend more time untangling procedures to push their functions forward. With small teams handling significant responsibilities, inefficient workflow dominos everything else, resulting in lost time and money.
6. Freeze Large Investments
Rethink big money-spending ventures such as new hires, research and development, and capital expenditures. This can help to save on the cost of operations and free up funds for other needs.
Of course, this is not a decision to be made lightly, as it can significantly impact the business. Before making any decisions, consult your financial advisor to determine if this is the right move for your company.
7. Cancel Unneeded Subscriptions
It's not always easy to identify which subscriptions are truly unnecessary. Take a deep dive into your operational budget and track which subscriptions are vital to your daily operations—each line on your expense report lists where your money is going and why. If you’re unsure, speak to your bookkeeper or financial advisor about their thoughts on the matter.
Benefits Of Lowering Operational Costs
Reducing your company's operating costs can have several benefits for your business. It can improve your bottom line, help you become more competitive, and free up funds to invest in other areas of your business.
Expansion is a common goal for most startups. If you want to manage cash flow, trimming the fat on other expenses related to your business will deepen your cash pool.
Economics is an ebb and flow. Sales drop, the market turns, and sometimes you just have a low month. A clear picture of how much you need to spend on operating costs each month gives you the insight to plan your budget and prepare for financial surprises.
Of course, operating costs are just one part of your overall budget, so it's essential to consider the impact of any cost-cutting measures on your overall business strategy. But it can be a win-win for your business if you can find ways to lower your operating costs without compromising your company's goals.
Efficient Operating Budgets Require Accurate Financial Records
One of the most critical aspects of efficient operating budgets is accurate financial reporting. Too often, companies fall behind in their bookkeeping, leading to significant problems. Without correct financial records, tracking spending and making informed decisions about where to allocate resources becomes challenging.
At Zeni, our support doesn’t just stop at software. All of our controllers have years of experience in accounting and bookkeeping to help you manage your budgets. Our finance team’s expertise combined with AI technology ensures that you receive daily updates and 24/7 access to the status of your finances.
We’ve even created an easy-to-read bar graph to represent all your operational costs (example below). View your monthly, quarterly, or year numbers on your Zeni Dashboard. One-click on the tile shows you a breakdown of all your expenses by expense group and total amount. You can see where the most significant portion of your budget is going to at any time.
See more about how the Zeni Dashboard works by booking a demo with us below!