In a survey conducted by the Federal Reserve, only 20% of “healthy” businesses (based on profitability, credit scores, revenue, and other factors) had enough saved to survive two months of lost revenue. Is your business prepared?
At times when you don’t have the ability to impact your incoming revenue, one way you can increase profits is to reduce your expenses. Long term plans to reduce expenses are important, but being able to affect your bottom line in the short term can make a major impact as well.
Here are ten ways you can cut your business expenses this month.
What are business expenses?
Business expenses are the everyday costs of operating a business. Business expenses come out of your revenue and determine your overall profit.
Common operating expenses include:
- Payroll and staff perks
- License fees
- Accounting fees
- Building maintenance and repairs
- Office supplies
- Attorney fees
- Property taxes on real estate
- Vehicle expenses (including auto insurance)
- Travel expenses
- Overhead costs
Many costs to your business are fixed expenses, meaning they are the same every single month (think mortgage or rent, license or membership fees). Variable expenses, such as payroll or inventory orders, might be minimized or mitigated.
Types of business costs
- Overhead cost: any cost associated with running the business that isn’t directly related to the product or service. Examples include rent, office supplies, insurance.
- Fixed cost: any cost that is predetermined. Examples include rent, membership fees.
- Variable cost: any cost that changes based on volume, use, timing, or market values. Examples include utilities, inventory prices, hourly payroll.
- Recurring cost: any cost that will repeat on a weekly, monthly, or yearly basis. Examples include payroll, utilities, and memberships.
10 straight-forward ways to cut business costs now
1. Invest in automation
Streamlining your operations and procedures with technology can mean significant savings, both in dollars and in time. Utilizing software to manage expenses or facilitate data entry or analysis can help with budgeting and identifying errors or fraud. Using a CRM (customer relationship management) system can help you close more sales and also free up hours of time for your staff to pursue more revenue.
Automation and the introduction of new software might mean upfront cost and a slight learning curve, but the results can be both immediate and perpetual. As software services continue to update, you may find that one of your tools can now serve multiple purposes, allowing you to cancel or move away from other platforms and time-wasting practices.
2. Outsource & consolidate
Are a large number of your employees managing their own appointments or doing their own bookkeeping or writing? Are your salespeople wasting hours on marketing? It may be time to outsource elements of operations to outside experts.
Instead of spreading work around to all employees, you can actually save money and create more time for revenue-generating work by hiring outside consultants or freelancers. Contract work is usually cheaper, as it doesn’t include the overhead of benefits and taxes.
You may also consider consolidating your workforce, having some employees pick up additional responsibilities (a raise for doing more work may be cheaper than hiring a new employee), or minimizing the working hours of employees. It may not be a sustainable option for the long term, but for a one or two month trial you may be able to see significant savings by trimming employees or employee hours.
3. Hire interns
Hiring interns is a popular choice that can create a win-win situation for everyone involved. Interns are volunteer or lower-cost employees, often college or high school students looking to gain industry experience. Consider creating an intern position with flexible hours and cost-effective pay that will end up benefiting your business. Interns can manage the tasks that are slowing down revenue-generating work. Two or three interns can be cheaper than the cost of a single full-time employee, which can allow you to continue the work without the extra overhead.
4. Consider quick cuts
The best way to make a fast and dramatic impact on your monthly expenses is to make cuts. Take a look at your existing monthly expenses, both variable expenses and fixed expenses and see if there are any that can be eliminated, even if just on a temporary basis.
Lunch, snacks, and other extra workplace perks and supplies are an easy first step for cuts that can reduce your business expenses this very month. Cancel subscriptions, used and unused, for a one-click impact on your monthly expenses. Minimize marketing and advertising budgets and freeze discretionary spending within your departments–things like customer meals and travel can add up quickly.
5. Audit your expenses & operating costs
Performing an audit of your business operating expenses might take an afternoon, or even a full day, but it can illuminate your business decisions to reduce costs this month. Pore through your credit card statements, bank statements, invoices, payroll, every utility bill, and any other financial records you might have. Look carefully for any areas where you may be overspending.
Are you paying more for utilities than you expected? Can you negotiate lower rent or a payment plan for invoices? Did you notice a recurring business expense, such as a subscription, that you could’ve sworn you cancelled? Are you paying an underperforming employee too much? Is your employee gym membership perk being utilized? Can you be more cost-effective by getting multiple bids or finding new vendors?
This kind of work can be tedious, but usually results in multiple areas of immediate financial improvement. Enlist the help of your accountant or your financial team to find trends and problems in your business operations.
6. Price shop & negotiate
Once you’ve conducted your operating expense audit you should have a good idea of where your business money is going. Consider negotiating lower prices or more favorable payment terms on your bigger commitments or fixed expenses, such as rent or vendor payment plans.
Take a few hours to price-shop your current expenses. Your best case scenario is finding a more affordable option, and your worst case scenario is confidence that you have the best pricing for your needs.
7. Sell unused items & sublease unused space
Most businesses have something in excess that they can sell for more immediate profits. Consider minimizing your rental space this month, or mitigate the costs by subleasing your unused space. You may be able to mitigate the cost of your rent or mortgage by splitting up space, or leasing the space that is unused during the weekdays or finding ways to lease the space for evenings and weekends if unoccupied.
8. Ramp up “free” marketing
If you have paid marketing campaigns that are producing well—by all means, continue with that strategy. But consider dropping paid campaigns that aren’t producing ROI and instead focus your efforts on free marketing efforts. Double your networking efforts and consider customer marketing such as a referral program that can bring in business at no additional cost.
Social media can provide advertising and brand outreach while cutting your monthly expenses. In addition to your own social pages and website, find other avenues to promote your brand by collaborating with similar companies or influencers. Consider appearing on a podcast or webinar or swap a guest post with a partner.
The best part about an organic marketing strategy is that it is free or incredibly low cost. If you’re looking to reduce business expenses, consider investing in high quality content marketing.
9. Maximize your employee hours
Are you taking full advantage of everything your team has to offer? Check in with employees to see if they have untapped skills or interests that can help them maximize their satisfaction and contributions. Foster a culture of time-efficiency by setting deadlines for projects and rewarding those who exceed expectations. Give underused employees more responsibilities and set higher expectations for those who are underperforming.
10. Zero in on strengths
By limiting what you offer, you can actually optimize your skill and expenses. For example, if you are spending far too much time on video resources for your web design clients, you may consider subcontracting your video services and narrow your focus to the web page design basics you prefer. Don’t be afraid to stop providing services or products that are simply costing you too much.
Cutting your business expenses to improve growth
Inventory can be a significant cost for businesses, and you may uncover during your audit phase that you’re overpaying for certain items or services. Use this month to sell excess inventory to other providers or at a discount to your customers to move product along. You might also consider renting or selling underused equipment. Any measure you take to cut costs will increase cash flow and help you to grow.