You must have done everything you could to reduce operating costs, but what if you still need to find an additional 10%, 20%, or even 30% reduction in administrative costs? If you are finding yourself in a similar position, then you are not alone. 

Business operating costs have become one of the debatable aspects of running a business because these expenditures reduce the profit margin. Still, they are essential as well to ensure high quality, productivity, and business continuity. 

To mention a few examples of operating expenses, you can take labor costs, employee health insurance, pensions, sales commissions, asset depreciation, maintenance costs, and expenses related to tech and IT infrastructure, and the list can continue. 

Nonetheless, let's look at some top strategies to help you find an optimum solution to resolve your query related to how to cut business expenses. 

Top Strategies to Reduce Operating Expenses in Businesses

Operating expenses, in particular, should be controlled and minimized as much as possible to keep the company on the right financial track. Here are five practical strategies to help you achieve this goal:

1. Consolidate Events

If you are already on the journey to reduce business operating expenses, then you must have eliminated non-mission critical perks, like holiday parties, event tickets, and others. You cannot eliminate more such activities, but you can do one thing.

You consolidate whatever is left. For instance, you can combine training days and events into a single day. According to the Harvard Business Review, a university determined that Parents' Weekend and Homecoming were important and saved around 40% of the total cost by scheduling both events on the same weekend. 

2. Automate Routine Tasks

Automation is one of the key enablers in business process management, which has the potential to lower operating costs immensely. The use of technology in the workplace involves simple activities such as data entry, invoicing, and inventory control, which can be time-consuming and costly to employ someone to complete. 

Automating business processes also reduces the chances of human errors thus resulting in improved efficiency of business operations. Purchasing the appropriate solutions for your business implies improving performance and optimizing the functioning of your company.

3. Gain Control of Miscellaneous Spending

In every department, 15%—20% of spending has been done without close management. Sometimes, it is supplies, and sometimes, it is computers or telecom. It is essential to spend resources, especially financial resources, on infrastructure or items that are essential to streamlining operations and improving productivity.

For instance, instead of spending $10,000 on unnecessary supplies, this expense could be utilized to buy crucial equipment in the manufacturing department that needs to be replaced for years. 

4. Shift the Burden to the Most Efficient Teams

Outsourcing business operations is one significant way to reduce operating costs. It not only reduces operating costs but also improves process performance. The decision to outsource depends upon the business's unique requirements; you can consider outsourcing if the process requires specialized needs from your end.

It is best to hire a BPO service provider for tasks that do not require special input from your end, like recruiting, media planning, payroll management, and benefits management.

Management is likely to refuse your proposal to outsource business tasks due to several hassles, such as the burden of creating a contract, finding the right service provider, and fear of confidentiality. However, businesses are ready to take up one-time discomfort to streamline the process in the long run.

5. Take action on the personnel issues.

All administrative departments have unresolved personnel issues, and it may be time to take action. It is essential to restructure the jobs of less-than-fully-busy employees and confront the problem of underperformers.

To overcome the issues of less-than-fully-busy employees, you can either combine the job responsibilities and reduce the headcount or raise the responsibilities to align their efforts and time on valuable tasks.

Now, regarding terminating the underperformers, every manager knows whose work has been unsatisfactory but is uncomfortable firing them. However, as a manager, you may protect them for a maximum of two years, but you will have to let them go. After two years, it will become difficult for them to get comparable positions elsewhere, so is protecting them doing them any favor? Redefine the job requirements and create a process to sort out the qualified ones. 

Important Things to Keep in Mind While Cutting Business Expenses

While you are on your quest to reduce the operating costs, here are two things important things to keep in mind:

1. Firstly, you should not rely on a single idea that will restore and balance the dwindling cost structure. It will most likely entail such a risk that management will never implement it. Hence, it is best to reach the reduction goal with a combination of 10 or more actions.

2. Secondly, remember the degree of disruption in your operations will be directly proportional to the degree of cutting you are doing.

For instance, incremental ideas with minimal cost-cutting and impact on other departments will help you save 10%. Redesign or reorganization of tasks, like the elimination of low-value activities with moderate impact, will help you save 20%.

Meanwhile, cross-department and program elimination ideas are the last straw that is drawn when you are aiming for a 30% reduction. However, this decision has the greatest potential to be organizationally disruptive. 

The Bottom Line

Reducing administrative costs can be a daunting task, but it needs to be done—not just to improve the profit margin but also to make space or look for areas where efficiency and productivity can be increased. You will have to make some hard decisions, like letting go of some employees, but sometimes you will have to walk on tough roads. 

Reorganization of the duties and responsibilities will help you distribute the tasks among employees equally and make the best use of the resources. You can outsource some of your business processes if the expense to set up an in-house team will be expensive and time-consuming. SBL Corp, with a team of dedicated experts for a variety of tasks, can assist you in improving productivity and delivering work on time.