What does running a household and running a business have in common? In most cases, they both run on a budget, and cutting expenses is an ongoing exercise. But just as there are some areas of your household you wouldn’t think of cutting expenses, there are also some areas of your business that require a little more consideration before deciding to reduce costs.
These are some of the areas that small business owners may want to think twice before reducing costs in.
1. Technology Safety Measures
If your business has a digital presence, such as storing customer data or an e-commerce platform, then IT security should be one of your top priorities, and an area that may not be wise to cut costs in. Cyber crime continues to become more and more sophisticated every day and downgrading your security levels makes you more susceptible to falling victim to an attack. The consequences of suffering a cyber attack can be costly, and few small businesses can make it through without their financial health being thrown into jeopardy.
In addition to IT security software, it is also worth considering Cyber Insurance for your business to help cover the financial losses your business may suffer if you were to experience a cyber attack.
2. Insurance for your business
When it comes to insurance for your business, there are a lot of options to choose from, and comparison websites can make it very appealing to go with the cheapest option. But in this instance, the cheapest policy may not always be offering the best cover. While it’s reasonable to shop around between different providers and brokers to make sure you are getting the best deal overall, it’s also important to carefully review the cover you’re receiving under each policy to ensure it suits your needs. Choosing a broker who has a thorough understanding of your industry is also a good idea.
3. Your product/service quality
Cutting costs in areas that directly impact the quality of your product or service may save you money in the short term, but in the long term, the resulting lost customers and damage to reputation may be even more difficult to repair. When we spoke to Kenneth Leo from LLB Accountants and Cameron Woodcroft from Pilot Partners about easy ways small businesses can cut costs, this was a point highlighted by both parties:
“Many of my clients are in the hospitality/food sector, and one of the biggest mistakes I see some of them make is cutting back on the quality of their ingredients to save money – this might provide some short term savings, but in my view, the longer term impact on reputation just isn’t worth it.”
Kenneth Leo, LLB Accountants
“Reducing costs in areas of your business that drive the income and growth may reduce potential revenue, and this is ‘a big no-no’. You should also think twice about reducing investment into areas of your business that you expect will generate future growth for your business. If it is absolutely necessary to make this investment, think about just pausing these expenses as a temporary measure.”
Cameron Woodcroft, Pilot Partners
While it is inevitable that at some stage you may need to look at your staffing levels, it is also important to not make this your default option every time business starts to slow down. Providing employees with job security will benefit your business with improved morale and productivity. If you do find yourself needing to reduce staff costs, consider other ways to do this such as reducing hours, enforcing annual leave, or even temporarily reducing salary. Just remember to get advice from a qualified employment lawyer prior to taking any of these steps to ensure you’re taking all the right steps legally.
Another area to avoid trying to save costs is when hiring an employee – how your business thrives will depend greatly on the calibre of your people, so when hiring a new staff member, try not to hire the candidate willing to accept the lowest salary, but choose the candidate who you feel is genuinely right for the role.
5. Marketing that is working
Marketing budgets are often another area that get cut when a business’s financial performance starts to suffer, and while you may need to reduce costs on your overall marketing, it’s important to not reduce spend on the areas that have been proven to bring you results. For example, if you’ve been advertising on multiple social media platforms, consider running your advertising on one channel that has proven most effective.
Aon has taken care in the production of this document and the information contained in it has been obtained from sources that Aon believes to be reliable. Aon does not make any representation as to the accuracy of the information received from third parties and is unable to accept liability for any loss incurred by anyone who relies on it. The recipient of this document is responsible for their use of it.
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