Introduction

Many small businesses have trouble with fixed costs. These are costs that your business always has to pay, no matter how productive it is. For example, if you have employees and keep them busy, you need to pay their salaries. When you buy equipment for your business to keep it running and growing, there will be fixed costs that go along with that purchase.

If you own a small business, you know that the costs of doing business can quickly get out of hand. Even if your sales are not very high, you might have to pay fixed costs every month.

Fixed costs are important to the health and productivity of your business. This article will show you nine ways to keep your fixed costs in check and make sure your business stays profitable.

Objectives

At the end of this article, readers should be able to:

1. Find new ways to run your business and save money on things like utilities, rent, etc., which will lower your operating costs.

2. Make customers happier by giving them better service for less money than other companies that offer similar services.

3. Help you grow your business by bringing in new customers who want to use your services for free or at a lower price because they know you have something unique to offer.

Overview

Small business owners need to stay on track with the right things. One of those things is optimizing their fixed costs. Fixed costs are hard for small businesses to manage, which causes a lot of worries.

Unoptimized fixed costs do not just waste money. They also harm your company financially. A cost-optimisation strategy can improve cash flow and increase net income.

If you do not optimise your fixed costs, your business may run out of money, even if it is doing well, because it is losing money on every sale.

Small businesses do not make enough money to be able to compete with other small businesses, let alone with bigger businesses. They will lose a lot of money if they cannot keep costs low, especially fixed costs.

9 ways to optimize fixed costs

1. Optimizing fixed costs by streamlining operations

Business operations need streamlining. Small businesses can make the most of their fixed costs by streamlining their operations.

Streamlining means that an organisation has gotten rid of unnecessary processes and procedures. These steps and processes waste time, money, or resources for the organisation.

Streamlining makes an organisation more efficient by getting rid of bottlenecks.

For example, if three people are working on a project, but only one can work on it at a time because the others need to do other things, then one of those tasks will have to wait until that person finishes what he is doing on the project, which will slow down the project’s completion. Streamlining these tasks would prevent delays and quick completion of all three tasks.

2. Optimizing fixed costs through outsourcing

When outsourcing company functions, you should think about how it will affect fixed costs.

Outsourcing can cut fixed costs for a small business. You do not need an in-house printer if you want to save money on printing and postage by outsourcing. You will not have to keep printing equipment at an office or warehouse.

With an outsourcing contract, you can save money by paying per job instead of per hour or per day. This is helpful if you are outsourcing parts of the production process, such as ordering materials or sending invoices.

Outsourcing lets companies hire people from outside their company, which cuts down on their overhead costs.

3. Optimizing fixed costs by investing in technology and automation

Small businesses can save money on fixed costs like payroll by investing in technology and automation.

The cost of hiring people is often the biggest fixed cost for a small business. If you want to spend less on this, you can invest in technology and automation.

For example, if your accounting system requires you to manually enter data into spreadsheets, but you have a computerised system that can do the same job with less work, why not just use that one? It costs less and works better.

Also, if your company has been using a lot of email marketing because it is easy, but they do not need as much of it anymore because they have automated things like email marketing campaigns with tools like Mailchimp, they might want to use those tools instead.

So, they will save money while still giving their customers the same level of service they normally get.

4. Optimizing fixed costs through office and warehouse space optimization

Office and warehouse space is expensive. How much does it cost, though? What can you do to change it?

Office and warehouse space optimization helps a small business save money on fixed costs by making it possible to use more square footage per employee. This means that you can use more employees and equipment without paying extra for the space.

This helps bring down the average cost per employee, which brings down the total cost per employee. This means less money goes to administrative overhead.

Office and warehouse space optimization is a fantastic way for many small businesses to save money and make more by cutting down on costs like rent, utilities, equipment maintenance costs, and other fees that come with running an office space.

5. Optimizing fixed costs through standardization of processes

Small businesses can cut their fixed costs by standardizing their processes.

A small business might standardize the way it makes things so that it always uses the same parts. This lowers the cost of parts and ensures that there are regular replacements. It cuts down on waste by getting rid of the different kinds of product materials.

Standardized processes also cut down the time it takes to train staff and the number of mistakes they make.

For example, a small business with more than 100 computers running the same programme has more than 100 employees who all need accounting software. This means that your workers need to get software updates. If you make a single version of the programme that everyone can use, your staff will only have to update their machines once. You and your workers save time and money.

Errors in quality control and customer service are less likely when methods are standardised. The company can give better customer service if they meet or exceed quality standards (or vice versa).

6. Optimizing fixed costs by leasing instead of buying

Your business’s equipment costs will be lower if you rent instead of buy. When you lease, you do not have to buy the equipment, which lowers your fixed costs.

Leasing costs money throughout the lease, but it is less expensive than buying new equipment when the lease is up. This lets small businesses use new technologies without having to upgrade them every year.

For example, you have heard that it is hard to start some businesses because most people need a lot of capital to start. What if you could rent instead of buy? You would not have to buy any equipment or stock, so you could start making money right away and keep doing so even as your business grows.

7. Optimize fixed costs in your company by reducing the exposure to debt

If you have a lot of debt and are trying to get the most out of your fixed costs, reducing your exposure to debt will help you reach your goal.

In a small business, one way to get the most out of your fixed costs is to spend less money on debt. This is because when you borrow money, your total debts go up and your net worth goes down. When a business borrows money, it has to pay interest and make monthly payments.

When your business has less debt, you will pay less interest on loans and other forms of credit, which will help you save money in the long run.

8. Optimize fixed costs by increasing efficiencies and productivity.

The best way to get the most out of fixed costs is to improve productivity and efficiency. By making the most of what you already have, you can save money and make more money for your business.

For example, if you run a business and freelancers do most of your work, you can incentivize them by offering more pay per output. If they are efficient and productive, they will be able to do more work in less time. So, it will be easier for you to keep the same level of service or quality while also cutting costs.

9. Monitor and Re-evaluate Costs Regularly

The costs of running a small business do not stay the same; they change over time. For example, if the business rents a storage unit, it needs to keep track of how much it costs to keep that unit in good shape every year. If the business buys a new truck that costs more than the old one, it can use this information to make decisions.

Labour costs are the same. At the beginning of the year, a small business might hire someone for a few months to do some work. If that person does not do a good job or is not available at the end of that time, it should think about replacing them with someone who will do a better job.

Small businesses can get the most out of their fixed costs by making sure they only pay for what they need and nothing more. They do this by keeping an eye on their costs and re-evaluating them often.

Takeaway

Here are some important business tips. Fixed costs make up a big part of the budget for your business. To keep your business profitable, you should look at this part of your finances often and try to find ways to cut costs.

Conclusion

With these simple tips, you can keep your fixed costs low and make them work better. Keep them in mind as you make your business plan, so you do not waste money on things that do not work.

Nothing in this article is definitive. Your company may have distinct needs and situations. These are the main types of fixed costs that business managers need to know about so they can make smart financial decisions. By keeping an eye on them and finding other ways to make money, you can keep your company’s finances from getting in the way. It is particularly important to figure out how much money you can save by making the most of your fixed costs. myCFOng can assist.