Every small business faces hard times sooner or later. When you have to cut costs, it can be difficult to decide what your business can go without. Do your best to prioritize what’s important to your employees and overall business first. With the help of your team and a willingness to weather the storm, you can make it through tough financial times. Here are some cost-cutting solutions your entrepreneurial peers have tried that might work for your business.
When you are trying to cut expenses, it’s important to evaluate where money is going and whether you can renegotiate contracts, including those for insurance.
“Insurance coverage and rates tend to change from year to year, depending on industry trends and market performance,” said Joseph Jonas, director of business development at Symphony Risk Solutions, an insurance consultancy. “It’s a best practice for small business owners to reevaluate their insurance program on an annual basis to ensure they are getting the most comprehensive protection at fair market value.”
Business owners who allow their insurance to renew automatically rather than consulting an insurance professional may be paying more than they need to. Taking the time to adjust your coverage based on the current market can save you thousands without compromising your protection. Raising deductibles, valuing your space differently and even taking previous claims into account can result in a more targeted, lower-cost policy.
Bundling policies also may help. As with auto and homeowners insurance, “many insurance carriers offer price breaks when small business owners purchase multiple policies at the same time,” Jonas said.
One of the most common bundles is a business owner’s policy, which pairs general liability coverage with commercial property insurance, he said.
Spencer Shaw, owner of several Re-Bath franchises in the Northwest, suggested evaluating your office space. “If the market is soft and there isn’t high demand for what you occupy, start negotiating a lower rent,” he said. Similarly, if you can work out of less space, it may be time to downsize until demand is up again and you need a larger space.
But being loyal to a vendor can also have perks. “Periodically, let your vendors know you are price shopping,” said Haley Palmer, owner of WIN Home Inspection Central Oregon. “A lot of companies have loyalty rewards or have the ability to cut you a deal if you continue to work with them.”
In addition to reviewing your existing contracts, Palmer recommended finding free resources, such as social media and business networking websites. A strong social media presence can be a powerful marketing and advertising tool, helping to get your business’s name out there and attract new customers.
Payroll is a significant expense. If your staffers are in the wrong positions or aren’t doing their share, you’re losing money.
“Before you jump to hire, make sure you are thoroughly reviewing the day-to-day workload of your staff,” Shaw said. “Make sure the right people are in the right seat, pulling their weight. Sometimes changes are required that can prolong the necessity to hire the next person too early.”
“Forecasting sales ensures you have enough staff, but also that you are not overstaffed and thus increasing your labor,” added Andrew Diamond, president of Angry Crab Shack.
It’s also important to stay up to date on best practices so you can prepare for possible wage increases. “Stay current on any new laws or wage increases in the coming future so you have a plan on how to deal with the increase in your payroll,” Diamond said.
Finding ways to incorporate automation into your business may also help. If you have tasks that can be completed with a computer and do not require the hiring of another employee, it will cut your costs. Automation can also help to increase employees’ productivity, further saving the company money.
Generative AI technologies can help employers save money in numerous ways. Consider these examples:
Supplies account for a larger portion of your budget than you might imagine. Though having the best pens and highest-quality paper might seem important, it’s surprising how much money you can save by making small changes.
Start by tracking supply usage within your office. Seeing what you truly use allows you to shorten the list of necessary supplies. You should also take the time to shop around for the lowest prices available. You can find some great deals by purchasing from nontraditional office supply sellers and online retailers, like Amazon, and by buying in bulk.
If you’re still looking for ways to cut costs, consider hiring an accountant.
“There is almost always an area of your business where you can save money or reallocate it to spend it more wisely,” Palmer said. “It might even be beneficial to hire an accountant or CPA to help you look at the books to figure out ways to shrink your spending.” [Read related article: What’s the Difference Between Accountants and Bookkeepers?]
If marketing commitments are eating up a big part of your budget, consider switching to online and social media marketing. These marketing strategies are more cost-effective and, in some cases, completely free. Now more than ever, customers are finding products on platforms such as Instagram and Facebook. By developing a social media marketing strategy, you can flesh out your brand identity and meet your customers where they are.
If you’re willing to develop your own strategy, your efforts could be free. If you’d prefer to outsource the job to professionals, working with a digital marketing agency or taking an online course may still be more cost-effective than your current marketing situation.
The cost of labor is an important expense of any small business. You may not be in a position to cut your workers’ pay, but there are other aspects of staffing where you can tighten the belt. For example, it may be better to reduce paper waste or lower the overall budget to prevent overspending on things such as pens, markers and other office supplies. You can introduce other cost-saving measures, like online or virtual document collaboration tools, that could reduce your employees’ physical office supply use.
You may need to think about what recurring costs you can cut. Are you paying for any subscription services? Does your company use unnecessary vehicle or transport services? Do you work with a vendor that could be cut out? Recurring costs are often the best place to start analyzing where you can save money month over month and improve your cash flow.
Effective cost-cutting measures depend on your individual business, so you may have to think outside the box to find the right measures for your company. Of course, the other option for dealing with business expenses is to increase revenue. Get your team together and brainstorm some creative ways to increase revenue for your business. These could be promotional events, special sponsorships or other strategies to get your business’s name out there at little or no cost to you or your company.
As you try to cut costs, it’s important to remember how your business spends money. These are the most important expenses to monitor as you look to economize:
Evaluating your spending and overall costs can make a big difference in your business. By cutting unnecessary expenses, you can allocate that money to where it’s truly needed. It’s smart to keep a close eye on costs in good times and bad. The trick is to consistently cut what you don’t need while keeping what you do. Though not fun, rigorous cost cutting can help a business survive for the long haul.
Alex Halperin contributed to this article.