3 Ways to Reduce Operating Costs Before a Company Expansion

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Expanding a company can be expensive enough when you consider the cost of investing in new locations, equipment, and employees, and the subsequent burden on cash flow is only compounded when the business isn’t being run as efficiently as possible. Thus, one of the most important steps in any company expansion should be evaluating and evolving operating procedures, schedules, suppliers and any other policies, people, and processes that are integral to the success of the business, but not yet optimized to their full potential. Here we cover three fundamental ways to reduce operating expenses and increase efficiency during a challenging corporate expansion:

1. Compare Manufacturing and Packaging Providers

Any business that is a provider of a product should be working towards reducing the cost of manufacturing, packaging, and/or shipping that product. Thus, while you might be doing well enough with your current supplier, it wouldn’t hurt to start examining your options to find a more cost-effective solution. Many brands reasonably turn to outsourcing a percentage of their labor to maquiladoras to accommodate the increased demand that results from expansion, with international manufacturing groups like NAPS being one of the more popular examples for manufacturing in Mexico.

2. Eliminating Excessive Employee Expenditure

Whether you’re opening up another physical location, trying to drive expansion through online marketing campaigns, or acquiring another business, one thing’s for sure – you don’t need extra employees hogging up your time and payroll. Thus, while you don’t necessarily have to downsize your workforce permanently, it may be prudent to drastically cut hours and reduce your team to only the main figures needed to get the job done. At the same time, if you find that things go smoothly with a much smaller staff then it might be wise to stick with that group and discard any other non-essential employees until cash flow is no longer an issue.

3. Downsize or Vacate Your Existing Location

Leasing an office or any other place of business can be quite expensive on a monthly basis, with some industries paying as much as 20%-30% of their revenue on business space. If your expansion involves opening up a second location with the hopes that it will eventually perform better than the first because you’re not satisfied that your existing location is allowing the company to reach its full potential, then consider letting go of your first location altogether and either relocating your headquarters to the new building or downsizing to a much cheaper facility before the expansion.

Forget About the Stereotypes, Check the Bottom Line

One reason why many businesses fail to reduce operating costs even though it could drastically enhance expansion is due to the fact that most company leaders are hesitant to make a ton of huge changes before a transition – not because they’re afraid their plans won’t work, but because they’re afraid of the criticism, ridicule, and resistance they’ll encounter from other staff members. Obviously, if you’re letting go of some of your employees, they’re not going to be too happy about it. Another example would be cynics who might criticize your brand for outsourcing manufacturing work, even though this is a common practice in every industry. Forget about the silly stereotypes and focus on your company’s statistics and bottom line.