12 cost-cutting strategies that can improve a small business owner's bottom line

Published 8:45 pm Monday, April 29, 2024

12 cost-cutting strategies that can improve a small business owner’s bottom line

Sometimes it seems like you’ve already spent the money coming into your business before it hits your account, right? Most business owners cringe a little when it comes to their business expenses. That’s because workers, facilities, supplies, taxes, insurance, marketing and other costs seem to pile up faster.

However, savvy entrepreneurs know how to reduce business expenses without compromising on other aspects of their business. With some help from technology and vigilantly tracking your cash flow, you can also cut costs.

Next Insurance compiled a list of 12 cost-cutting strategies that may help reduce small-business expenses and inspire you to think differently about your finances.

Different kinds of business expenses to reduce

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Before we get into the reductions, let’s talk about expenses. There are three different types of business expenses. Once you figure out which bucket certain expenses fall into, you can determine which costs have flexibility vs. the immovable costs.

  • Fixed costs. These are costs you don’t have much control over and are generally predictable month-to-month. Fixed expenses could include rent, a mortgage, a loan, business insurance (if paid monthly) or a car payment.
  • Variable costs. It’s tough to budget for these expenses as they are rarely the same and don’t always occur at the same time of the month. However, expenses such as supplies, shipping, wages for contractors or marketing are expenses you can directly control.
  • Periodic costs. These are expenses similar to fixed costs but happen more infrequently, such as quarterly or annually. Oil changes, equipment repairs or annual payments are periodic costs.

How can a business reduce expenses?

While you may not have as much leeway to change certain fixed and periodic expenses, there are still actions you can take to improve your bottom line. However, depending on your business needs, there should be many ways to reduce variable costs.

1. Build a budget

Budgeting is one step and keeping track of your actual expenses is another. While apps can help you keep track of business expenses, you’re the ultimate deciding factor with your small business. Which expenses can your business afford to cut back on, and which can you reduce while still allowing your business to grow and thrive?

When you build a budget, make sure to include every single expense you can think of. Then it’s equally important to keep track of your spending — including how much you’re spending, and in  what areas of your business you’re spending.

Luckily, creating a budget has never been easier. Whether you decide to use accounting software or grab a spreadsheet template, plenty of tools and resources can help you get started.

Review your budget frequently (weekly or monthly) to ensure that spending is what you expect. You can catch problems early and resolve them before they grow.

2. Think twice about business credit cards

Credit cards can be helpful, but use them cautiously. It’s very tempting to make purchases with them and intend to pay them off in full when the bill comes. However, according to the American Bankers Association, only 34% of Americans actually do this.

Purchasing without paying off in full can cause you to rack up bills without realizing it. And with the average business credit card’s interest rate above 14%, interest charges can quickly increase your expenses. In the long run, that leads to higher spending and debt.

Shop around. Credit card companies compete on annual percentage rates (APR), so compare cards and take advantage of lower rates and offers.

Also, if you have consistently paid on time and have a good credit score, you might consider asking for a lower interest rate, especially if you have offers for lower costs elsewhere.

3. Go paperless

You may be surprised how much you spend on stationery, printer ink, and office supplies. It really adds up: U.S. companies spend over $120 billion on printed forms annually, most of which become outdated within three months.

You’re probably already using computers and software to handle certain aspects of your business, such as bookkeeping and customer information. However, going fully paperless can cut business costs while also saving you storage space and time spent on searching through paperwork.

Switching to email invoicing, online record keeping, and digital payment systems can be a cost-effective way to streamline your operations. Many apps and software are low-cost or even free. Keep an eye out for new technologies that can lead to serious small-business expense reductions.

4. Research the best prices for services

To save money on services like banking, phone service, and internet, businesses should research competitors’ pricing and compare. You may not need to switch suppliers, but if you contact your vendors and tell them you’ve seen lower prices from their competitors, they may match or better the competitor’s price.

It’s crucial to compare costs and ask questions about what you’re getting for your money. Avoid paying for features you won’t use; for instance, do you really need the fastest internet service package? The key is to find value for your needs, not necessarily the lowest-cost option.

For example, an inexpensive bank may not offer all the services you need. Paying a little more but receiving some perks and banking initiatives may be more worthwhile.

To maintain a cost reduction strategy, check in with service providers once or twice a year to ensure you’re getting the lowest available rates.

5. Don’t overpay for insurance

Many small-business owners spend too much on business insurance costs because they’re paying for coverage they don’t need.

The best commercial insurance for small businesses is not a one-size-fits-all policy. Instead, try to find a less expensive option where you can tailor your insurance coverage to your specific industry and needs.

Most insurance companies also offer bundling discounts. So if you need different kinds of coverages like general liability or commercial property, you can buy them together for a discount. (FYI, this particular coverage combo is called a “BOP” or business owners’ policy.)

6. Change up your marketing strategy

Word-of-mouth has always been the best and most affordable marketing method for many small-business owners. According to Nielsen, 88% of their survey respondents trust personal referrals more than other channels. Recommendations are trusted 50% more than banner ads, mobile ads, SMS messaging, and SEO ads.

So, if you’ve been spending a lot on conventional advertising, consider networking more and advertising less. You might be paying for local advertising in newspapers or direct mail, but do a serious calculation: How much does your traditional advertising actually bring in, and how much does it cost?

There’s also no need to give up on ads altogether. It might be time to take a serious look at social media marketing resources like Facebook, Instagram and others. You also might consider non-social media advertising through Google business profiles or review sites like Yelp.

7. Consider your staffing needs

Employing people comes with a lot of necessary expenditures. Depending on your business, it may be necessary to have someone working for you in-house. Other times it may be simpler and more cost-effective to pay for help as needed.

For example, most early-stage startup small-business owners don’t need a full-time accountant on their payroll. Instead, they might have a part-time accountant or outsource monthly or for quarterly tasks.

Freelancers can also fill other gaps in your operations and keep costs down. Many business owners hire IT professionals, HR specialists and marketers to handle tasks instead of employing them full-time.

8. Invest in your employees

Watch for signs of employee burnout, overwork and boredom — you’ll end up paying more to recruit and train new people when your best employees leave.

Instead, consider offering them the chance to learn and implement new skills using sites like Udemy and Coursera. Many kinds of online training offer the opportunity to learn in-demand skills for lower prices.

For example, if an employee is interested in graphic design, you might have them attend training and help you with website and marketing efforts. They’ll get exciting new challenges, build their resumes, and expand their responsibilities, and you’ll make the most of your resources.

9. Take advantage of discounts and ask for them

Everyone loves a good deal, so be on the lookout for programs or opportunities to save. Suppliers and local organizations of all kinds may offer business savings programs. Similarly, maybe there is a time of year when a retailer offers a large sale — you may choose to stock up during that time frame.

And it’s not just local businesses; Staples and Office Depot both have discount or reward programs. You may also be able to get discounts from local businesses through your chamber of commerce.

Remember: The companies who bill you aren’t shy about asking for more money. Above all, don’t be embarrassed to ask about prices, discounts, and potential savings. You may get discounts for paying your bills early, for being a longtime customer, or through price-matching offers.

You can also try negotiating with your vendors. For example, you can partner with another small business on a bulk discount to net some cost savings.

10. Look into bartering

Get creative — savings comes in many forms. You may be able to do some work for another business that can perform the work you’ve been paying for.

For example, if you’re a carpenter who could use bookkeeping help, do you know a bookkeeper who could use carpentry services? If you can take some services you’re paying for out of your monthly budget, it may really help to improve your bottom line.

Make sure both of your businesses are trading services of roughly equal value. You can use online bartering websites to draw up agreements.

11. Re-evaluate your workspaces

What is essential, and what are “nice to haves”? Start with your workspaces or office. To save money, consider:

  • Reducing your office space
  • Negotiating lower rent
  • Moving or re-negotiating your long-term lease
  • A mobile or home office
  • Exploring co-working spaces or shared office spaces

Other occupancy costs include utilities, internet, cleaning, and maintenance. You should evaluate these costs.

For example, if you’re paying high power bills, most utility companies offer free energy audits and rebates for energy-saving improvements. Some communities are offering lower utility prices or your participation in peak-use programs. Could your business survive having the power turned off for a few hours during peak summer-use months? You might be eligible for one of these discount programs.

12. Review cash flow regularly

Set a schedule to look at your finances and determine which products and services bring in the most money and what’s costing you the most. You can opt to monitor and manage cash flow weekly, monthly, or every quarter, whatever works for you.

Even if only temporarily, limiting yourself to your core business can be one of the most effective cost-reduction strategies.

This story was produced by Next Insurance and reviewed and distributed by Stacker Media.