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Cost Optimization strategies

Cost saving techniques during times of crisis

The world is facing humanitarian and economic crisis due to the onset of corona. Although we have measures to contain the spread of virus among humans by following a simple set of strict guidelines suggested by leading experts, the economic factor is going to take time for businesses to walk on the path of recovery. Businesses can survive and swim the current tide if they can identify all the areas where cost reduction is required and following those rules in the current and post corona era to help themselves in the short and long run.

We have already discussed in our previous blogs articles related to Coronavirus (COVID-19) – Accounting considerations in exigencies, Business Continuity Plans (BCP) considering the present situation apart from sharing the Guidelines for Business Continuity readiness for UAE Organizations issued by NCEMA (National Emergency Crisis and Disaster Management Authority) for business concerns in UAE.

Following are some cost optimization techniques we have identified which may help you in managing and optimizing costs to run your business:

  1. Reviewing all the expenses:

You can’t manage something which you don’t track. If you are not keeping a record of all your expenses, you should start doing it right now. Don’t leave any penny expenses which may be huge if you sum-up for an year.

Once you track all expenses, the next step is to review, analyse and eliminate unnecessary expenses.

  1. Use 80/20 principle

Pareto’s 80/20 principle states that 80% of the outcome is caused by 20% efforts. You can apply this powerful principle to limit expenses on those 80% activities that are not generating enough income for you.

  1. Follow the latest developments which could be low-cost alternatives.

Most of the supermarkets are still following the traditional way of printing the sales promotion broachers which are expensive. Instead they can refer their customers to reach their website to download the promotional offers or display them at supermarkets on digital screens.
Going green is a great development nowadays; it is a smart financial move. Stop using tissues and printing papers unnecessarily, instead you can shift to napkins which are reusable.
Due to lockdown, the best alternative to meet your clients and colleagues is through VOIP apps. UAE government has recommended to use Hangouts, ZOOM, Webex, Microsoft Teams etc.

  1. Postpone the capital expenses or buy a used equipment

Businesses should look at every opportunity to be able to save the money while utilizing the new opportunities. In the process of the capitalizing on those new opportunities, one should not end up in spending huge amount of capital expenditure rather check all the opportunities of postponing or reducing the capital expenditure by looking at buying used equipment, outsourcing some of the processes or taking the equipment on lease.

  1. Pool Purchasing power

Find other small-business owners and collaborate with them to save money on supplies and other goods. Your team can buy hand sanitizers in bulk from a distributor instead of buying it from retail outlets at high price.

  1. Always ask for a discount

They may not advertise it, but many top retailers will discount their items for small business owners. You just have to take the initiative to ask. Sometimes, you can even get discounts when you pay within the credit period. All you have to do is to ask.

  1. Be reluctant to give credit and be very aggressive with past-due accounts

Avoid giving credit to customers, but if you give credit to any, thoroughly check the customer’s credit background and offer credit only if they have a good repayment history. Most of the times we take emotional decisions but for less-than-creditworthy accounts, its advised to consider the following actions: Collect cash in advance; send partial shipments; request letters of credit, personal guarantees and a pledge of assets.

Make a list of customers whose payment has past the due date. Start calling them and follow up for the payment. Get aggressive and express your urgency with them. If you do it right, some customers might release the payment on the same day or give a minimum discount for payment.

  1. Treasurey management

Invest your money where you can get better returns. Open a savings account and make a deposit. Trading in commodities and share markets will lure you, but, it may sometimes end up in eroding your money too.

Also plan for restructuring the loans as UAE Central Bank has given guidelines to all the banks to support the businesses here by way of easing out loan repayment plans or defer the EMIs for 1 to 3 months.

  1. Outsource your non-critical tasks

There are a lot of tasks that can be outsourced these days. You can out-source your accounting, payroll, treasury management, debtors or creditors management if it costs you more to hire a full time accountant or accounting team.

  1. Reward your profit-makers.

It may sound a little contradicting, but spending to save does make sense in some cases. I would suggest taking the proactive approach of rewarding profitable behavior from both your employees and your customers. What does that look like? You can start by making small gestures, like an occasional free lunch or a treat, to boost employee morale and keep the work environment positive to increase the productivity and profitability.

  1. Re-visit the employees cost

Call to your employees and discuss the present situation with them and arrive at a reduced pay. Unilateral decisions relating to pay cut may bring discomfort in your workforce and collective decision will lead to organization success.

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Balaram Vuchidi

Managing Director
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