One of the biggest concerns of entrepreneurs is how they will pay all bills at the end of the month and still make a profit from the product or service they offer. To succeed in financial management it is essential to reduce fixed costs in the company.
It is important that this type of expenditure is very clear to those who control costs. Especially in times of crisis, poor management of fixed costs can be the main factor of waste and low profits in an enterprise.
Since many businesses have great sales, but they spend too much and cannot see the fruits of the work done. This content on our blog he talks about some steps to improve your financial management during the crisis.
Therefore, in this article, we will talk about what they are and how to reduce your company’s fixed costs. Here, you will find out:
- What are fixed costs and what is the difference for variable costs?
- What are these main expenses?
- How to reduce fixed costs?
- How to know the fixed and variable costs?
- Tips to reduce fixed costs like: getting to know the company, saving energy, negotiating better internet and telephone packages, revising supplier contracts, saving on paper and other materials, outsourcing services, optimizing the workday and considering the home office;
Are you interested? Go ahead and boost your company’s profits from today. Come on!
What are fixed costs and variable costs?
Fixed cost is all amount that a particular company spends monthly to keep your production or service provision up and running.
In this category, any expense that does not change according to the quantity of product sold or service provided is included. Variable costs are those that change as the production of units sold increases.
For example, if 100 products are normally manufactured, but in a month there was a greater demand, it may be necessary to contract temporary employment. This is a variable cost.
What are the main fixed costs?
As we said, fixed costs are those that your company will have every month to continue in the market. These are accounts that need the manager’s attention in order not to spend money for nothing, including:
- Raw material.
How to reduce fixed costs?
Some actions can be taken by entrepreneurs to reduce fixed costs and increase the profit margin from the company. We will address some of them to assist in this process of reviewing expenditures.
Get to know your company
The first step in reducing your company’s fixed costs is to know the flow of business money well. There are many examples of companies that are successful with the product they offer, but they spend so much to work that they cannot grow.
In order to be able to see the panorama of these expenses, it is important to have a way of control those accounts. If you do not have a financial team that is dedicated to the sector, dedicate time and energy to learn for yourself about cost management.
Study your fixed and variable costs
List all costs and assess whether they are all really essential or which of them could be dried to reduce fixed costs and the amount spent at the end of the month, directly impacting profits.
This tip applies to both fixed and variable costs. As discussed earlier, it is necessary to maximize profits, earning more and spending less.
One of the biggest costs for a company is the electricity bill, especially when the region is experiencing red flag peaks. However, it is possible to save on small actions that can make a difference at the end of the month.
A tip to reduce fixed costs is make the most of natural light and only turn on the ambient lamps if it is really necessary. In addition to saving, it is also good for the health of employees’ skin and eyes.
Turn off unused equipment and machinery and, if possible, unplug it. Many do not know, but there are products that consume energy even when turned off, such as television.
It is also important that this awareness to reduce fixed costs and savings in consumption, is part of the routine of employees, therefore, carry out internal communication campaigns.
Instruct them to turn off their computers after use and only use the air conditioner when necessary.
Negotiate best internet and phone packages
Another way to reduce fixed costs and save money is to analyze all your service packages like internet and phone and negotiate better values.
It is common for operators to make changes to their plans from time to time, and sometimes they can have a new one that best meets their needs.
Furthermore, evaluate if you really use all the continuous services you have hired, for example, is the contracted internet speed essential? Is it possible to work and continue to offer quality service at a lower cost? So, lower it.
They may seem like small cuts, but when adding to other habits, the amount saved by reducing fixed costs will make a difference.
Review supplier contract
Work with Providers of trust makes all the difference to attract new customers and maintain the quality of the business. However, to reduce fixed costs, the manager needs to reassess the contracts with some frequency.
It is not difficult that there is a change in the values practiced by the market, after all, everything depends on the economic moment of the country. Sometimes, it may be interesting to switch from one supplier to another with the same characteristic, or even negotiate better values with current ones.
A good strategy is to show your partners that there are competitors offering lower costs, reaching an agreement with your current supplier.
If you need a new product or service, do a good research before choosing a supplier. The difference in value found can be large and will help you to reduce fixed costs.
Save with paper and other materials
In times when technology has been allied with companies and the population in general, it doesn’t make sense to keep wasting money, and reducing fixed costs with paper and ink cartridges can help.
So consider switching to document printing for cloud storage. They are safer and will save employees time when looking for an old report, for example.
In addition, opt for the cheaper option of some items, such as coffee for employees and visitors.
As practical as it is to have those capsule machines, maintaining one of them is expensive and there is still an extra expense of electricity. Opt for the good old coffee strainer.
Another way to reduce fixed costs is to opt for outsourced contracting common services that do not require specialized labor in your company’s market sector.
Having a permanent employee for some functions of your business can be expensive, so outsourcing can be a good option.
Usually, they have a lower cost and mean time savings by not having to directly manage employees. You indicate your need and the outsourced company is responsible for the management of the hired employees.
Some services constantly offered in this category are cleaning and security.
Optimize your workday
It is no secret for any entrepreneur that motivated employees have better results. That is why, look for methods to keep your team stimulated, offering benefits, among them, the flexible working hours.
It is not always possible to reduce the employee’s hourly load, but, consider the possibility of evaluating production and not the hours of the day when the employee is at the company’s disposal.
When the professional is satisfied, his productivity increases, resulting in better results. By producing more, certainly, overtime (which must be paid), for example, will decrease and may reduce fixed costs in this regard.
Consider the home office
Recently, with the start of the new coronavirus pandemic, companies and professionals have been forced to adapt to the home office.
For many companies, the change brought excellent results, falling in the acceptance of 80% of the managers, according research.
Of course, depending on your industry, not all employees can work from home, but consider implementing the model home office for the administrative team.
It is a way to reduce fixed costs such as rent, energy bill, transportation voucher, among other expenses. It is also possible to make employees more satisfied when working from home and having other benefits.
There are even online tools for point control or task management to manage remote work.
As you can see, your company may be spending a lot of unnecessary money and the lack of management of these items can make a difference in the profit margin of your business.
Take time to analyze your company’s scenario, learn how to reduce fixed costs and reap better results.
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