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How African small businesses can cut costs and still increase quality

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In my conversations with business owners, one of the main issues that they raise is the fact that their business is not making the profit they expected it to make. Or, sometimes, the business venture is not even profitable. So, the question that I am often asked is, What can I do to increase profitability?

The key principle for business profitability

The key to a profitable business is keeping costs low, maintaining quality and maximising profit.

In order to maximise profit, most business owners will try to increase sales. This is a great strategy. If it is possible to do so. But it depends on many things, including the economic situation in the country, the size of your market and how good your competitors are. Meaning that it can take a lot of time and it is not something you can fully control.

However, there is another to way boost profit that is fully under your control: cutting costs and managing expenses.

One of the key challenges of reducing expenses is that if you are not careful, it can also reduce the quality that you deliver. Maintaining quality, particularly when the economic situation is bad, is critical for businesses to survive. If not, your customers will leave and you will find yourself in more trouble.

Here are 7 ways to help you reduce costs while still maintaining the quality of your products or services.

1. Identify and reduce discretionary expenses

First of all, do you have the full overview of all your expenses? I mean your business expenses as well as any personal expenses that your business pays for. If not, this is where you need to start.

Once you have the full overview, distinguish between your business needs and wants. Expenses like utilities, marketing, and rent are examples of business needs. Expenses like snacks, any luxury expenses, or buying anything that is not absolutely necessary to run the business can be considered “wants”.

Wants should be minimized or completely eliminated. Maybe not forever and ever, but as long as your business is not showing the profit you want, you need to take action. If you have the data, analyse all your expenses from the past 3 – 4 months and then use that information to determine which wants can be cut.

2. Find ways to cut existing costs

After you have minimised or eliminated your wants, analyse your business needs. What you are now looking for is ways to reduce existing costs. I shared various cost reduction strategies in my previous post. Click here for a list of 15 cost-cutting strategies that will help you increase profits.

When you are able to reduce your costs and expenses, you will free up money to invest in your business. This can be through marketing, by adding new products, or even improving the way your business looks. All these actions can help to achieve a higher quality level for your business.

3. Monitor your expenses

Do you have a business budget?

If no, stop what you are doing and make time to create your business budget. It is one of the most important things you should do when you are trying to cut costs. Creating a budget is crucial because it will tell you how much money you can spend during any particular month.

Unfortunately, many business owners do not budget correctly and then end up spending too much money. As a result, their business struggles. If you are not seeing profit from your business, use a budget.

Having a budget will allow you to monitor your spending. Monitoring your spending will allow you to have more control over your business. Having more control will allow you to make better business decisions. And better business decisions lead to higher quality.

I wrote about how to create an easy budget here.

4. Streamline your business operations

One of the best ways to lower your expenses is to make your business more productive and streamline areas that are wasting time and money. Is your business able to afford software that can automate processes? If yes, consider automation of tasks like data entry, staff scheduling, inventory management system, etc.

Start looking for solutions that can replace manual work. For example: if you are spending a lot of time managing staff schedules, look for affordable scheduling apps. Are you spending too much time writing product orders? Look for a POS or inventory system that will automatically generate stock orders when inventory reaches a certain level.

Time is money. The more time you spend on manual tasks, the less time available to do things that bring in money. Like selling more products or even learning how to get more customers.

If your business cannot afford software solutions, you can still streamline your business processes. The key is to analyse the various processes in your business and then determine where things are being repeated unnecessarily (this is called redundancy) and where mistakes are being made. You are looking for areas where time is being wasted.

Once you have determined these areas, your next step is to eliminate the problem.

One way to do so is to create standardized business processes for things that keep repeating. For example: if you notice that customers keep asking you the same questions over and over, why not create a list of frequently asked questions (FAQ), print it on a poster, and hang it in a highly visible location in your business? You will still have customers coming to ask you questions, but the number will reduce and free up your time.

Another example. If you notice your employees keep making the same mistakes or keep asking you to explain the same things over and over, put the process that they have to follow on paper. This is easy.

Just write down each of the steps that they have to follow. You can summarise each step and just provide the information that they need to know to complete each step. When you finish, you will have created a standardised business process that can now be used by your employees to carry out their work with less distractions. It can also be used to train new employees.

Having standardised processes increases the level of professionalism in your business. And we know that higher levels of professionalism lead to higher quality.

5. Actively manage your stock

If you have a business that keeps stock, like retail or manufacturing, part of your money will be tied up in inventory. Do you know which are your best-selling products? Do you know which products are not selling well?

Monitor your inventory and keep track of your sales to find out which products are not doing well. Once you have discovered them, experiment with ways to sell them. Maybe offer a discount or sell them as a package with another product.

Try this for 1 -3 months. If nothing changes or if your sales only increase by a small amount, drop the products that are not selling well. If necessary, offer a high discount to get rid of them quickly. Why? So you can free up money to spend on products that bring in higher sales.

You can also use this strategy on products that are not making a good profit.

Analyse your products to determine which ones have the highest profit margins. From that list, choose the ones that have the highest sales. Stop selling the other products unless you can use them to attract the well-paying customers.

Use the money you save to build financial reserves, increase marketing for best-selling products, or invest in new products with higher margins to grow your business. Having fast-moving products at higher price levels will increase customer’s perception of the quality of your business.

6. Focus on the customers that bring in the most money

The previous strategy can also be used for customers. No, it is not possible to stop customers who do not spend money from coming to your business. But you can change your strategy and start attracting customers who spend more money.

The strategy is to use the Pareto Principle to determine who your best customers are. Once you have determined who they are, start developing marketing strategies that will 1) stop your customers from leaving your business and 2) encourage them to start spending more money.

For example: at certain times during the year, you can offer them additional discounts if they buy anything from you. Or, you can offer them a discount on a package of products that they usually buy. To do this, you will need to take time to analyse their spending.

If your business is mainly attracting customers that are spending more money, it will help increase the quality of your business. You will be able to add products that are more expensive. You will also be able to attract more better-paying customers through word of mouth.

7. Maintain your equipment

If your business activity is put on hold during repairs, you are wasting time and money. 

If you find yourself repairing the same equipment over and over, take time to understand why this is happening. Once you know why, take action. Can you replace faulty equipment? If no (or not yet), start saving money and build a financial reserve to use for replacement purchases.

Can doing more maintenance stop the problem from happening? Or at least reduce how often the problem happens? Try to create a regular maintenance schedule. Even though it may seem like you are spending money for nothing, doing regular maintenance will reduce the cost of repairs. It will also help to reduce delays.

There are also additional benefits. Having reliable equipment means that your business is reliable. Customers consider a reliable business to be a trustworthy business that provides quality. This can also help to attract more customers and increase sales.

I help small & medium businesses generate higher profits so that they don't have to waste time chasing funders

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