Three questions to ask in order to lower operational costs

What would a downgrade mean for businesses in a country?

As I write this post, 70% to 80% of businesses in South Africa close down within five years of their existence. Now with a downgrade menace or confirmation, more businesses will suffer from a possible economic dark cloud.

A downgrade from a credit rating agency such as Fitch or S&P pretty much lowers South Africa’s credit score to borrow money from outside the country in order to finance its budget. As a result of being labelled a ‘less trusted borrower’, South Africa will be forced to pay higher interests on its debts. Consequently, it means that in order to repay its high interests debts, the government will need to increase its taxes thus causing an increase in price of foods and other basic commodities.

Depending on the type of industry you are involved in, an increase in taxes and basic commodity prices might definitely affect your business. However, in all the historical crisis, there has always been survivors and great winners.

Not everybody will be strongly affected by the downgrade…but there are strong guarantees that the already heavily indebted people and businesses will suffer from an increase in interests rates.

So how can you keep your business from going down the drain during an economic downturn?

A business chance to survive during an economic downturn solely depends on its ability to make effective cost decision in its operations while making noise about its product. In other words, business owners and managers need to review all the little ‘holes’ through which money comes out and assess whether those holes are useful or detrimental.

As an example, why would a company hire a social media manager while 80% of its employees spend at least 1 hour and half on Facebook with the company’s Wi-Fi on a daily basis?

During such times, entrepreneurs will need to dissociate their wants from their needs. Having to maintain too many ‘wants’ (such as a big unproductive team of employees, non-justifiable office spaces, an appetite for loans,etc…) will definitely hamper your business ability to thrive.

There are three questions every business owner and manager should ask themselves before making an expense during troubled economic times:

1. Is there a cheaper way to follow without compromising quality?

Quality is very important to retain your customers and to remain on the competition race. Quality should not be compromised but low cost ways to achieve quality should always remain a viable option. For example ,if you are running a new solo-start-up, you would prefer to make use of the public libraries WI-FI as opposed to purchasing data.

2. Can I do it myself? Can we do it our-selves?

So many business owners and managers tend underestimate their ability to produce in certain outsourced task. I really favor outsourcing but at times when the financial numbers are in the red, business leaders ought to examine a way of doing themselves the things they delegate to outsourced companies. If you can do it yourself, then you will surely save some money.

3. Can I learn it?

High expenses can also be rooted in a lack of skill and knowledge within the organisation. Certain businesses spend so much money on trivial services. By learning basic skills such as building websites, registering a company online, registering for UIF, the HR basics…your company is more likely to cut on certain external expenses.

Never underestimate the power of learning new tricks.

By reducing your operational costs, you will be more likely to produce affordable products in a market already suffering from price hike. Therefore, you will stand out. But remember:’do not compromise quality’.