Cost-cutting measures for SMEs in challenging economy
Ghana's economy has faced several macroeconomic issues, as have many nations. Inflation rates have been relatively high, resulting in higher costs for goods and services.
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The Ghana cedi's depreciation against major currencies has exacerbated the problem; these reasons, taken together, have an influence on the profitability and sustainability of SMEs, which are critical to the country's economy.
Furthermore, the high cost of living in urban regions such as Accra places additional strain on SMEs, both in terms of operational costs and employee salary expectations.
In this situation, SMEs must take deliberate steps to stay competitive and profitable.
Cost-cutting is more than just lowering expenses; it is also about optimizing processes, increasing efficiency, and finding new methods to provide value to consumers.
This article aims to provide Ghanaian SMEs with actionable insights and examples to help them thrive despite the financial pressures they face.
Optimise supply chain management
Effective supply chain management can drastically save operational expenses. SMEs should focus on developing good connections with suppliers to negotiate better terms and prices.
Group purchasing, which allows many SMEs to combine their orders and benefit from bulk savings, is an efficient technique.
A group of small shops in Makola, Accra, formed a cooperative to buy items in bulk from wholesalers.
This approach decreased their buying expenses by 15%, allowing them to provide competitive pricing to their clients while retaining solid profit margins.
A tiny electronics retailer in Okaishie struck bulk purchase arrangements with key suppliers, lowering their per-unit costs by 10%. This enabled them to offer competitive prices while increasing their profit margins.
Leverage technology
Leveraging technology is an effective cost-cutting technique for Ghanaian SMEs, particularly in adverse economic circumstances with high operational costs and fluctuating markets.
Small and medium-sized enterprises can streamline operations, increase productivity, and cut costs by implementing digital tools and creative technology solutions.
Cloud computing enables SMEs to access software, storage, and other services via the internet, eliminating the need for costly on-site hardware and IT upkeep.
A modest law company in Accra switched to cloud-based document management and storage.
This transition eliminated the requirement for physical servers, lowering IT maintenance expenses by 30%. It also improved data accessibility and communication among employees working remotely.
Outsource non-core activities
Outsourcing non-core tasks is a strategic approach that enables SMEs to concentrate on their main company functions while lowering operating costs. Accounting, IT support, and marketing are examples of services that SMEs can outsource to gain specialised experience without incurring the cost of hiring full-time employees.
A small manufacturing company in Accra outsourced its accounting and payroll responsibilities to a nearby accounting firm.
This measure eliminated the need for a full-time accountant, saving the company 20% on salary and assuring accurate financial records. A Kumasi-based IT firm outsourced its IT support to a managed services provider.
This collaboration provides 24-hour technical support and routine system maintenance, lowering IT expenditures by 30% and reducing downtime.
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Adopt energy-efficient practices
Energy costs can be a considerable portion of operating expenses. SMEs can cut expenses by implementing energy-saving practices and technology like LED lighting, energy-efficient appliances, and solar electricity.
A local eatery in Cape Coast has installed solar panels to fuel its operations. The original expenditure was expensive, but the restaurant now saves almost 30% on monthly electricity bills, which has a big impact on its bottom line.
Engage in strategic partnerships
Strategic partnerships with other businesses can result in mutual benefits and cost savings. Partnerships can range from co-marketing agreements to joint distribution networks.
A tiny food processing company collaborated with a local delivery service to distribute their products. This alliance cut distribution expenses and increased the company's market reach without requiring a specialized delivery fleet.
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Improve financial management
Effective financial management procedures are critical for detecting and controlling expenditures. Small and medium-sized enterprises should analyze their financial statements on a regular basis, set realistic budgets, and monitor cash flows.
An expert in the retail industry recruited a financial consultant to help streamline its financial procedures.
This resulted in improved budget adherence, prompt bill payments, and a better understanding of cost drivers, ultimately saving the company money.
Conclusion
Operating in a high-cost environment poses substantial obstacles for Ghana's SMEs, but with strategic planning and inventive cost-cutting methods, these enterprises may prosper.
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SMEs can not only survive but thrive in the face of economic pressures by optimizing supply chains, leveraging technology, outsourcing non-core activities, adopting energy-efficient practices, implementing lean management principles, utilizing remote work, engaging in strategic partnerships, and improving financial management.
Dr Andrews Ayiku, Lecturer/SME Industry Coach, Coordinator (MBA Impact Entrepreneurship and Innovation),University of Professional Studies Accra
ayiku.andrews@upsamail.edu.gh
IG: andy_ayiku
@AndrewsAyiku
F: Andyayiku