In an uncertain economy, when every penny counts, even the smallest increase in revenue or cost cutting can impact company profitability. The good news is a large-scale company overhaul isn't necessary. It's often simple, common sense steps within a cost-reduction strategy that improve the bottom line, especially for small businesses.
The end of the year is an excellent time to step back and look carefully at your business practices, but any time of the year will suffice. Take some time to consider what you're doing well and where you can improve before you implement cost-cutting measures for business.
Cutting costs in business can be tricky if you don't know where to start. Keep reading to find out how to cut business costs to save you money in the long run.
How to Cut Costs in Business
1. Reduce supply expenses.
You can do some cost cutting on office supplies by shopping around to compare prices. Look outside your pool of traditional vendors. You can find affordable office supplies with large discount suppliers like Amazon Business, Walmart, and Uline, who can often beat traditional office supply prices.
2. Cut production costs.
As a business owner, it's common to look for ways to cut costs on materials and optimize your resources. Here are a few suggestions:
- Try selling leftover cardboard, paper, and metal instead of sending it to the recycling center. Also, consider ways to use your waste to create another product.
- Make sure you're getting the most out of your production real estate. Centralize or consolidate the space necessary for production. Lease unused space to another business or individual—it can be as small as an office or as big as a warehouse space.
- Track and measure the operational efficiency of your business to adjust and optimize the use of available resources. Set performance parameters that reflect your efficiency goals and offer incentives when those goals are met.
3. Cut costs on financial accounts.
Look at your insurance policies and financial accounts for places to start cost cutting.
- Save money on insurance by comparing providers for the most competitive rate, then ask your current lender or insurance provider to match that rate.
- Consolidate insurance policies or bank accounts if possible.
- Evaluate insurance policies to make sure you're not over-insured or duplicating coverage.
- Don't take on unnecessary debt. Do a thorough cost-benefit analysis and future forecasting when considering business expansion. Consider the opportunity costs and the effect of debt payments on cash flow. Excess debt affects company rating, interest rates, and the ability to borrow in the future.
4. Modernize your marketing efforts.
Of course, you don't want to eliminate paid advertising that is working; however, it can be worthwhile to look at cheaper alternatives to help you cut business costs.
- Build your customer email list and implement a referral program. A recommendation from a current customer can be more likely to result in a sale than traditional marketing. Create email marketing campaigns that will wow your customers. Provide them with special discounts and coupons just for signing up.
- Network more, advertise less. Clients are more likely to hire a business with a face they recognize. They want to hear more about your brand story and what goes on behind the scenes than you selling a product. Take the time to form a solid relationship with your clients.
- Increase social media use and reduce traditional marketing. Consider capturing new leads with valuable content related to your business on platforms like Instagram, Facebook, Twitter, or YouTube.
5. Use efficient time strategies.
Optimizing productivity effectively helps cutting costs in business. Remember, wasted time equals wasted dollars.
- Minimize distractions by using apps like Focus Booster or Rescue Time to help employees focus and stay on task.
- Utilize software such as Connecteam and Toggl to track employee time usage, time spent on different work activities or projects, and billable hours.
- Set expectations for a reasonable amount of time to complete certain activities or tasks. Offer incentives for meeting or exceeding those expectations.
- Schedule business activities and encourage employees to adhere to the daily or weekly schedule.
- Schedule a predetermined block of time for meetings. Make it clear that you expect participants to be on time, stick closely to the agenda, and wrap up at the appointed time.
6. Cut costs with virtual technology.
Add virtual technology to your cost reduction strategy. The effects of the COVID-19 pandemic have shown just how effective businesses can be by operating remotely. Virtual meetings help minimize travel expenses, and virtual offices can eliminate the need for physical space.
While we certainly don't want to eliminate personal contact altogether, save it for the instances when it's most beneficial. Many organizations utilize tools like Microsoft Teams and Slack to communicate throughout the workday and hold virtual meetings on video apps like Zoom, Google Meet, and Cisco Webex.
Technologies such as Google Drive and Microsoft Sharepoint centralize company documents and product collaboration as an alternative to paper documents and meetings. By cost cutting with virtual document sharing, you can save largely on office essentials such as ink, printer paper, and even postage.
7. Narrow your focus.
As a small-business owner, I find narrowing my business focus to be one of the most effective strategies for cutting costs in business. By limiting the types of services I offer and projects I accept, I am more productive and produce higher-quality work.
Another way to narrow your business focus is to subcontract. Rather than turn away business, maximize your capacity by subcontracting pieces whenever possible. More projects equal more revenue, while subcontracting equals lower expenses.
8. Make the most of your space.
Analyze your current use of physical space. Overflowing storage, too many supplies, piles of paper files, and inefficient furniture and equipment placement are common space wasters.
Consolidate or centralize the different functions or departments of your business. Use space for dual purposes. For example, a meeting room doubles as a break room or a storage room that holds copy machines. The opportunities will vary depending upon the nature of your business.
9. Maximize your employees' skills.
If you're still searching for how to cut business costs, you can assess the current usage of your employee's experience and skills. You could be losing money by employing people in the wrong positions. Give responsibilities to the employees with the most skill and efficiency in those areas. Don't use expert salespeople for word processing or "numbers" people for design functions. It's often necessary for one person to be responsible for various tasks, but consider exchanging some of those tasks with another individual who shows greater efficiency.
10. Hire an expert in cost cutting.
If you find it challenging to cut costs in business, you may want to hire an expert to create an efficient cost reduction strategy. An accountant or a CPA can give your business a clean sweep and show you how to cut business costs.
Learning how to cut costs in business is essential to saving you both time and money year-round. Implementing tactics like reducing your supply expenses, utilizing virtual technology, and combing through your financial accounts can make a significant difference in effectively cutting costs in your business. You'll find that there is more room to put your finances toward what matters most in your organization.
A version of this article was originally published on June 19, 2012.
Photo: Getty Images