When the economy dips or the consumer demand for a product or service drops, companies begin to reexamine their costs and assess whether their resources are being properly allocated to maximize profits. There are many ways companies can save money by cutting costs, but larger businesses will take a very different approach from a small or family-run business.
Layoffs and Restructuring
One of the biggest ways a large business can cut costs and save money is by laying off employees in departments that are inefficient or under-performing and restructuring so that workers are employed in departments that provide a higher return on investment. After tracking and analyzing financial data, many businesses realize they would be able to produce the desired level of work with fewer employees. Data analysis also may show that another department is providing the majority of the company's revenue and should receive a greater share of investment. This data needs to be consistently monitored to ensure a business is investing its time and money in the most profitable areas.
Fixed costs include machinery, equipment and buildings. While purchases or leases may have made sense at the tie they were made, as the economic environment and consumer demands change the investment may no longer be justified. Businesses can try to sell off some of these assets or renegotiate for lower monthly fees on a short- or long-term basis. When the economy or the business environment improves, those assets can be replaced with newer, more productive assets.
The costs to initially "green" a business, or make it more environmentally friendly, may initially be larger than using traditional methods, but in the long run it may save a large amount of money on energy costs. For example, companies like E-bay and Google have invested in solar and wind installations to supply their offices and buildings with green electricity. While the long-term financial savings of many of these technologies has yet to be quantified, businesses often recoup the costs in state and federal subsidises and gain the approval of consumers as they tout their investment as a socially conscious business practice.
- Photo Credit large building image by sming from Fotolia.com
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