If 2020 showed us anything, it’s that being prepared for the unexpected is a must as a small business owner. In a precarious economy, every penny counts, and even the smallest increase or decrease in revenue and expenses can make a world of difference. Whether you’re in the beginning stages of starting a business or you’re well-established, cutting business expenses can help you become more profitable–and help you stay afloat if you are struggling.
To trim your overhead costs and create healthy financial processes that will benefit your business in the long run, give these 8 ways to cut business expenses a try.
Why Is It Important To Cut Business Expenses?
By cutting unnecessary expenses, you can increase your net income by increasing your revenue. According to Inuit, the best way to determine your ideal net profit margin–aka your total sales over a period of time–is to use the net profit equation. This equation is profit margin minus total expenses, divided by total revenue.
This equation allows you to look at what you’re bringing in vs. what you are spending. More often than not, doing this math allows you to uncover unnecessary expenses. Although you can’t force customers to spend more money, you are in control of these expenses.
Ways To Cut Business Expenses
Look At New Vendors
If your business involves using a supply chain, it may be time to shop around for new vendors. Take your time when researching vendors and wholesalers. While it may take some time, patience can lead to some serious savings. This is especially true if your industry has greatly expanded since you started–you may find that there are a lot more options than when you first started.
If you have a close relationship with your vendors already, you can also discuss negotiating your contract. They, too, are a business, and they may not want to lose an account (and money), so they may be willing to give you discounted rates or add-ons.
Cut Production Costs
A business should always be thinking about cutting production costs in any way that it can. To reduce material costs and optimize your resources, consider doing the following:
- Sell any leftover materials that you have rather than taking them to the recycling. Or think about ways that you can use these materials to create a new product
- Make the most out of your production space. If you are in a warehouse or office space with the leftover room, consider leasing out the room to another individual or business
- Improve workers’ efficiency by hiring on a skilled labor force and offer a training program so they can learn new skills and become more efficient at their jobs
Reassess Your Bank Accounts And Credit Cards
If you haven’t looked into your bank account and credit card options lately, now is the time to do so. You may be losing a lot of money to banking fees and high-interest rates. Ideally, you’d want to look for:
- A bank account made for small business owners
- A business credit card with cash-back or travel rewards
- Low-interest rates
If you are happy with your banking institution but not satisfied with the type of account or card you have, call them and ask what they can do for you. You may be able to change the type of account, lower your interest rates, or transfer your credit card balance to a card with no interest period.
Analyze Recurring Costs
There are likely a few recurring costs that you pay for that you may have forgotten about. Do you pay for any subscription services that you’re not using often? Do you use any unnecessary modes of transportation? Is there a vendor that you are paying that is not improving your business? These costs are the best place to look to analyze where you can save month over month.
Join A Coworking Space
If your small business does not require a full office or warehouse, consider working from a coworking space instead. These shared spaces are ideal for anyone working in sales, those who travel regularly, and businesses with only a couple of employees. These spaces allow you to network with other business owners and entrepreneurs, slash your administrative costs, and save money.
Consider Remote Work
If an office space, warehouse, or coworking space seems excessive for your current business, there’s nothing wrong with adopting remote work. A study done by Apollo Technical found that 4.7 million people work remotely at least half the time in the US. It also found that it saves an average of 40-minutes a day commuting, people are saving close to $6,000 a year, and remote workers are proving to be more productive.
If your business is small enough, pairing remote work with hiring independent contractors–which we will touch on shortly–may allow you to cut real estate costs altogether. Even if you are unable to have your entire staff working remotely, any desk that you free up in the office can lead to more money in your bank account.
Rely On Social Media Marketing
Long gone are the days of needing big marketing budgets for print and television ads. If you are already paying for advertising, this doesn’t mean stop. However, there are cheaper alternatives that are also more effective. Now more than ever, customers are finding new businesses using Instagram and Facebook. By developing a strong social media strategy, you can build a brand that customers will recognize and suggest to their friends and family.
You can choose to come up with a social media strategy yourself, making the marketing plan free, or you can hire a social media marketing manager to help. Even if you hire someone on, there’s a very good chance it is more cost-effective than the current marketing strategy you have in place.
Speaking of hiring a social media marketing manager, consider hiring freelancers/independent contractors instead of bringing on employees. Employees are typically one of the highest expenses for a business. Between hiring, retaining, paying wages, bonuses, and benefits, it adds up extremely quickly.
With independent contractors, you don’t have to pay salaries or offer benefits. Although you will need a part-time or full-time employee or two for some responsibilities, you can hire freelancers for smaller jobs that don’t warrant hiring and training a new employee. Use sites like Upwork or Freelancer if you’re unsure of where to begin.
Before bringing anyone on, interview them as you would a full-time employee. You don’t want to hire independent contractors that you will end up losing money on because you have to redo their work in the end.
Final Thoughts On Ways Cutting Business Expenses
No matter what stage you’re in with your business–from start-up to established–cutting costs will always be important. By cutting unnecessary costs, you can allocate that money where it is needed or build up your emergency fund for a rainy day.
Here at CloudFriday, we understand that finances can be one of the most overwhelming parts of owning your own business. That’s why we’re here to help with all of your accounting needs, we’ve got you covered so you can succeed. To learn more, contact us here!