Having a tight handle on where you spend money can help your business grow successfully. As a former business owner, I know the anxiety around making payroll or wondering if you're going to have enough money to pay all of your other bills. And, in my current role at Next Street, where we advise small-to-medium businesses and nonprofits on strategy and finance, I see firsthand how clients work hard to manage (and hopefully grow) their business's bottom line. While improving revenue is one approach, companies that also reduce business expenses can see long-term benefits.
Now, there are several draconian (and sometimes necessary) ways to reduce business expenses, such as letting employees go or outsourcing back office functions like accounting or HR. But I want to offer three expense cutting measures that may provide you additional flexibility and effectiveness.
1. Shift expenses (such as hiring or marketing) to another period.
Often, companies feel the urgency to grow quickly, which often requires additional people or marketing efforts to drive business.
However, I would recommend first objectively evaluating what current marketing activities and team members are effectively generating business. The measure of effectiveness varies by business, but some indication of customer acquisition cost by activity or person may help shed some light on what (or who) is working.
Instead of immediately hiring more people or spending an additional dollar on marketing, you can pause spending for several months as you evaluate the true drivers of new business. Doing so can potentially reduce business expenses by shifting your hiring or marketing expenses into later in the year. You can then also put more money behind what actually helps produce better results for your business.
2. Pool expenses with other businesses.
Expenses such as office space or PR are necessary for many businesses to work effectively as a team and build awareness, respectively.
Shared work spaces are changing the game on how business gets done, but co-working or incubator environments are not the only option.
To help reduce business expenses, owners could seek out shared office spaces with other tenants. While operating my previous fintech company, I shared rent with another energy technology company. We each benefited from reduced occupancy costs, and garnered additional synergies given that our companies could constantly support each other's growth in a much more intimate environment since only two companies occupied the space.
We then decided to hire the same PR firm and recommended that they give us a package deal—one rate to handle both companies. (Such an appeal goes beyond a typical approach of one company receiving a vendor discount based on a referral.) This arrangement helped the both of us reduce business expenses.
3. Automate business processes, especially those that generate high margins.
Consider utilizing an automation strategy on business processes that are very manual. For example, automating accounts receivables and payables processing can provide a significant amount of leverage to your finance manager or CFO. What matters is the degree to which these processes are truly automated—a new system may require more hands-on oversight or maintenance, thus reducing its effectiveness.
You can also automate social media activity that generates higher margins for your business. In addition to Hootsuite, marketers can benefit from other social media tools, such as Buffer or IFTTT, to help save time and generate positive margins.
Time and attention are needed from the senior leadership team in order to help reduce business expenses overall. Whether you shift or pool expenses—or automate processes that lower expenses—it can often feel very overwhelming to change how you operate your day-to-day operations. But these strategies could potentially offer your business the opportunity to create greater long-term value, including greater profitability and satisfied customers.
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