The ANZ Business Outlook survey for December 2024 shows that some Kiwi companies are reporting a significant increase in activity. But there was also a rise in expected costs, with 70% of surveyed businesses expecting their running costs to rise as we start the new year.
Costs are one of those external factors that can have a major impact on your cashflow. But what can small business owners do to lessen the impact of these rising costs?
Let’s look at five ways to overcome these cost issues.
Five ways to reduce the impact of rising business costs
The higher your costs, the smaller your profit margins become. And this can soon become a significant problem if you don’t have the working capital needed to keep the business running and growing when sales revenue and profits are down.
To cut the potential impact of 2025’s rising operational costs, here are five ways to get on top of your operational expenses:
Get strategic with spend management
Audit your business expenses and carry out some detailed costs analysis to fully understand your spending. This way you can identify and eliminate any unnecessary costs, while also negotiating better terms with your suppliers, reviewing contracts and putting tighter spending controls in place.
Optimise your supply chain
Your current suppliers may not be the most cost-effective options. Do some research into alternative suppliers and see where costs could be cut. This might mean exploring bulk purchasing opportunities, or building partnerships with other small businesses to increase your buying power.
Focus on the most profitable products/services
By analysing the profitability of each product/service, you can focus on the offerings that deliver the lowest cost-of-goods-sold (COGS) and the highest margins. This strategic approach helps you concentrate your resources in the most profitable areas, while reducing overall costs.
Improve your operational efficiency
A simple, lean operational process incurs fewer costs. You can improve your efficiency by investing in automation tools, cutting down on manual processes and using fewer staff in each department. You can also look at getting more energy-efficient, using sustainable energy to cut your utility bills.
Review your pricing and margins
When costs go up, it’s sensible to raise your price point to meet this increase. Be sensible with any price rises, though, so existing customers stay on board with any rises. You need to remain competitive while also stretching your margins enough to cover the threat of increasing costs.
Talk to us about coping with rising costs
Ultimately it’s the laws of supply and demand that dictate the costs of raw materials, labour and the services you use as a business. But by being smart with your spend management and overall approach to efficiency, you can ride out this period of increasing costs.
Come and talk to the team about strategies for overcoming high costs.