Cost Reduction Part 1

In this tumultuous economy, reducing operating expenses has emerged as the number one objective for business owners everywhere. So what are operating expenses? Operating expenses (also known as operational costs, fixed expenses, and indirect costs) comprise the expenditures that a business incurs as a result of performing its normal business operations. These expenses include rent, phone, utilities, fixtures, equipment, inventory, marketing budgets, insurance, payroll, professional services, etc.


This article is not meant to be a step by step plan to reduce your operating costs, but to stimulate thought about how your Company can reduce costs, increase profits while not losing its strategic focus.

So let's look at operating expenses strategically and some of the reasons you may wish to reduce them.

1. In this tough economy many are cutting back which may reduce demand for your product

2. Your losing money and need to get back on track to profitability

3. Your business is profitable but not profitable enough to meet your strategic goals

Circumstances for cutting operating costs vary, but cutting some of them, or all of them, can be risky. To do this correctly and maintain your strategic goals ask yourself the following questions:

• If I/we don’t spend this money can the Company still compete effectively?

• If I/we don’t spend this money will the quality of our product be diminished?

• If I/we don’t spend this money will our clients' experience with the company be reduced?

• If I/we don’t spend this money will the goodwill you have worked so hard to build be reduced?

You need to consider your company and the market in which you compete while making these decisions.