Every business needs reliable cash flow, and the best business ideas generate lots of revenue and require little capital to grow. But choosing where to spend and where to save is a tough decision for any business owner. These decisions are especially important for small and midsize businesses because their likelihood of bankruptcy is higher.
Cutting expenses is a great way to boost cash flow for any struggling business, as well as successful businesses that want to stay that way. Here are 10 useful tips to drastically reduce your cost of doing business.
What does 'cost cutting' mean in business?
In business, you can increase your net income by increasing your revenue or by reducing your expenses. You can raise revenue either by increasing the prices on goods and services you already sell or by adding new goods and services that will create additional sales.
If the time isn't right to raise your prices or add new products, the best way to increase your cash flow is by reducing expenses. Cutting costs in business usually means reducing the overhead you spend to run your everyday operations and provide goods or services to your customers.
What benefits can you see from cost cutting?
If your company is struggling financially, reducing expenses may be a necessary step to stay in business. Even if your company is financially stable, though, cutting costs in business provides multiple benefits:
- Reducing the likelihood that you will run into cash flow problems in the future
- Leaving more money to invest in expanding or improving your products or services
- Providing cash to outsource small tasks or hire additional staff
- Increasing your profit margin by lowering operating costs
- Allowing you to offer lower prices, which differentiates you from competitors
Whenever you save on operating costs, you have more money to put back in your business, which creates more opportunity for future growth.
How can you cut costs without cutting staff?
The challenge for many businesses is finding a way to cut costs without decreasing output, lowering the quality of products or asking individual employees to take on an unreasonable amount of work. Finding ways to cut costs without cutting staff is also a challenge for struggling small businesses.
In some cases, the benefits of cutting costs may outweigh the downsides of these challenges, especially if it allows your company to stay in business. However, there are many ways to reduce expenses that you can try before you decide it's time to let employees go.
1. Look for new vendors.
If you've been working with the same supply chain for years, you may be missing out on good bargains. While researching new vendors and wholesalers takes time, the cost savings can be enormous. Especially if your market or niche has grown in the time you've been in business, you may find that there are more options than were there when you initially opened your doors.
If you're a longtime customer, you can also approach your current vendors about renegotiating your contract. If they don't want to lose an account, they may be willing to offer discounts or add-ons that save you significant money.
2. Use crowdfunding.
The digital age has democratized corporate financing and changed how people and establishments conduct transactions. Crowdfunding can lower your cost of capital by connecting you to potential investors and customers who embrace your company mission and product.
You can also use crowdfunding for specific, short-term projects. If you want to launch a new product, crowdfunding sites such as Plumfund and Kickstarter can help you raise money for production and find an interested audience, allowing you to break even or make a profit from the very first day your product is available.
3. Join a coworking space.
Relocating to a smaller office space may save you money on rent (though you'll be on the hook for moving expenses). But if you run a particularly small business or your company has locations in multiple cities, it may not be economical to pay for an entire office space.
Coworking offices are great options for salespeople, managers who travel regularly or entire businesses if they're run by a small team. All you're really paying for is a desk and amenities, slashing your administrative costs. ShareDesk and Desktime are open-desk platforms that let you rent a place to work, often for under $100 a month.
4. Eliminate unnecessary perks.
Small business owners may feel like they have to compete with large companies by offering benefits and extra amenities. While offering some perks is a nice way to treat your staff, most employees probably appreciate comprehensive benefits and time away from work more.
If you are spending $2,000 every December on a holiday party for your staff, for example, consider skipping the festivities and giving them each a small bonus instead. If you have a relatively small team, you'll spend less, and your workers will enjoy more time with their friends and family.
If members of your executive staff receive exclusive perks like concierge service or gym membership, you can reduce expenses by cutting those and offering them the same benefits as other employees. This will save money and create a sense of equal value between workers and managers at different levels in the company.
5. Streamline your marketing.
If you haven't analyzed your marketing mix recently, you may find that you can reduce your expenses significantly. Calculate how much you spend on various forms of marketing:
- Public relations
- Social media marketing
- Search engine optimization
- Sponsored content
- Trade show appearances
- Direct mail
Look for areas where you are investing significant money or staff hours that aren't producing results. Once you identify wasteful marketing efforts, brainstorm ways to replace those elements with less expensive forms of marketing. For example, instead of traveling to trade shows, can you take out ads in popular trade magazines? Instead of paying for PR, can you spend 10 minutes a day on HARO?
You should streamline and update your marketing mix regularly anyway, but it is especially helpful to make changes when you are trying to cut costs and use your budget as effectively as possible.
6. Reduce business travel.
Many apps and online services offer inexpensive alternatives to meetings, commuting, traveling and other work-related functions. For instance, a video conferencing call may be more appropriate than flying to another city, even if you sacrifice some in-person time.
You could even look into the option of your team working remotely, rather than paying for a standard office space or regular business travel. Checking in by video conference once a week might be enough to keep everyone on the same page. Apps like Slack and Monday.com allow team members to collaborate on projects or communicate in real time without being in the same place.
7. Embrace DIY.
Hiring a professional will often get you the most polished results, but there are plenty of resources out there for do-it-yourself small business owners. You could look into options like these:
- Building an online store through Shopify rather than hiring a programmer
- Researching keywords through AnswerThePublic rather than hiring an SEO expert
- Using Canva to design marketing materials, social media posts or logos rather than hiring a designer
You can often get close to professional quality at a significant cost savings if you're willing to invest a little time and money in learning a new skill. You can also consult your employees, friends and family to see if they have any particular skills or expertise they could lend your business.
8. Outsource business tasks.
The global information economy has made the marketplace extremely competitive for service providers. As a consequence, knowledge workers are being pushed to add more value at lower prices. If you're operating on a shoestring budget, you could hire a freelance designer to create a logo or a YouTube personality to promote your products for under $100.
You can also outsource small or time-consuming tasks to freelancers, such as a virtual assistant or copywriter. This allows you to focus your own time and energy on your business's core activities without the expense of hiring a full-time employee.
9. Make your bank accounts and credit cards work for you.
If you haven't looked at your options for banking and credit cards recently, you may be losing significant money to fees or high interest rates. Take some time to explore your options and look for the following:
- A bank account specifically for small business owners
- A business credit card with cash back or rewards that you can use for your business, such as airline miles
- Lower interest rates
- Checking accounts with rewards for signing up or spending a certain amount
- Point-of-sale options with built-in perks
If you don't want to move to a new banking institution, call your current bank and ask what options it can offer you. You may be able to transfer your balance to a new credit card with a no-interest signup period, lower your current interest rate or discover that the bank partners with a point-of-sale merchant to offer perks for its customers.
10. Find free information and resources.
You can cut business expenses by minimizing the billable hours of your tax accountants, consultants, photographers, transcriptionists and other professionals by looking for free resources online. Here are some examples:
- Shake lets you create, sign and send legal agreements for free.
- Kaboompics and Unsplash provide free, high-quality images.
- The Small Business Administration offers a variety of classes about starting and running a business.
- Platforms like Udemy and Coursera allow you to study business, marketing and management skills for free.
When should you think about cutting costs in business?
Cutting costs shouldn't just be a periodic exercise to improve your bottom line. It's a key practice to stand out in the marketplace, with countless innovations, apps and websites disrupting how people do business.
Thinking outside the box will help you to lower your overhead and compete in a crowded marketplace. It will also reduce the likelihood that you'll run into trouble with cash flow in the future.
At least once a quarter, take time to evaluate your budget and look for ways to reduce expenses for your business.
Marvin Dumont contributed to the writing in this article.