SME: How businesses can cut costs
As Nigeria gradually pulls out of the recession shock, it has become imperative for business owners to innovate on the cost of operation to maximize turnover and expand their reach. Some operators of Small and Medium Scale Enterprises (SMEs) spoke on what
The goal of every business is hinged on being profitable and sustainable. To effectively attain this goal, whether as a start-up or a brand, the concept of cutting cost in business must be applicable at all times. A difficult yet important task in business operation is cash flow management.
According Robert Kiyosaki, an achieved entrepreneur, Cash flow is the life blood of business. It is invaluable for the survival of businesses. Your cost cutting should be driven by a desire to price your products or services more competitively, to improve financial performance, or to better serve your customer.
A quick survey of some business operators reveals how some of them have cut costs of operations.
Mr Femi Ogundipe who runs Simi Water in Kaduna State told one of our reporters on telephone that over-staffing was actually an issue he had had with his firm. He said, “I found that about 10 out of the 30 staff I had were not needed. So I redefined the department and reduced the staff strength to 20.”
Ogundipe said for the last three months, the 20 staff have done similar tasks but with incentives to motivate them. “I increased their pay by 5 per cent and explained why they would have to do more in their job roles at that point in recession for the survival of the firm. They quite understood and it has been splendid,” he noted. to
Another means of cutting the operational cost of business was identified by Mrs Fatima Oche in her fabric retailing business with stores at Nyanya town near Abuja. Too much money is wasted on communication and passing of information to her clients.
“At ‘Fatima Clothings’, I have been spending over N30,000 on call cards but found it is cheaper to engage clients using the social media and Whatsapp. We now exchange ideas, give update and attend to many of our customers via the platforms without wasting much on communication,” she explained.
From her experience, those who are still incurring significant amount of expenses on fixed line telephones, or paying huge amounts for employee handsets would need to refocus the resources while embracing affordable social media platforms to enhance communication.
Mr Acheme Abugo operates two outlets in Mararaba, Nasarawa State where he deals on electronics and mattresses. The owner of ‘Best Buy Electronics & Services’ said he has often commissioned his sales persons to do statistical analysis of the patronage trends of customers.
“When you buy many goods and tie down your capital, then you are not cutting operational costs,” he said.
Abugo said since June 2016 when he started practicing the strategy, he buys more goods that could be sold faster such as medium sized radio, television, refrigerators and other electronics rather than going for the bigger ones.
“So far, buying fastmoving goods in bulk according to the patronage trend has helped to significantly cut the cost of transportation, storage space and the risk that comes with keeping and moving those items,” he explained.
Adding aesthetics to shops and companies is good but in a time when the country just suffered an economic dip, experts have advised that entrepreneurs cut down the costs of furnishing their outlets.
“If you don’t have a need for computer or an air conditioner in your shop, don’t keep them. Install modest signposts and other basic equipment that you can easily recover through your turnover than going for customised ones,” Mrs Grace Peters, a skill acquisition trainer told some start-ups at Karu town in Abuja during a seminar last week.
Business owners are also advised to focus on their core areas and try to outsource the others. “You shouldn’t be jack of all trade in a business,” Mrs Peters said. To her, one should outsource business needs like receipts, banners, and other accessories. “This helps you to concentrate your mind on your main business, if you attempt to run around for all, you might incur more expenses and lose potentials for your business than you would imagine.
“Another good thing about this is that if you outsource them to growing businesses, you building a network of referrals as they may also outsource and direct clients to you for being their partners. It is a way of cutting down the money you would need to put into publicity - just by partnering with colleagues,” she noted.
“You can make light deliveries that you schedule before market activities resume or at your break time. This helps you to save some money on logistics which you could plough into the business to expand,” Mr Godwin Obute, a cold room operator in Mararaba town of Nasarawa State said.
Obute said he has developed a habit of doing delivery personally on schedule, without taking time from his business activity. “I don’t just seat in my office and say am the boss, I help in little things that might require me spending money to get them done.”
A Senior Economist with SPM professionals, Mr Paul Alaje, said to cut down costs, there is need for collaboration amongst SMEs.
“For instance, SMEs that are into farming don’t need to buy individual items like tractor. They can come together and buy one and then rotate its use; instead of one person saying, he wants to have a complete ownership. This will save cost.”
“Also, SMEs can cut costs by practicing budgeting system. Many of them buy items without market knowledge; they buy without knowing the product. But with budgeting, budget gives you some sort of restrain before you go out and purchase any commodity,” Alaje said.
Also to cut costs, you can ask, what can I buy on credit today and then sell and pay for it. This for me is better, instead of going to the bank to borrow at high interest rate. For instance, commercial banks are charging 27%. But if you buy on credit and say I am going to pay you back, this can save some costs. This can be practiced by pharmacies, petty sellers and fabrics sellers.”
Alaje said the truth is that the manufacturers also want their product to get to the market. “And you know production is not complete until it has gotten to the consumers. So you can have several reduction in cost from window to window.”