How To Cut Your Business Costs In Tough Times
Regardless of whether you run a big or small business, business owners always want to keep costs down. Cutting costs is not easy, it requires creativity and trying new things that you may not have thought of before.
If you’re looking to save money on your small business, you probably have more options than you think. Whether you need to cut costs temporarily or in the long term, small changes can have a big impact.
This article discusses three key questions to help you build a cost-cutting strategy, followed by our favorite money-saving tips to get started:
- How much time do you have?
- Do you need to save temporarily or put off long-term savings?
- What are the main costs?
- Ideas on how to cut costs for small businesses
We are not financial advisors. In this article, we provide some suggestions for reducing costs. Any action you take must be based on your knowledge of your company. We always recommend talking to a financial advisor if you are unsure.
How much time do you have?
Making smart decisions starts with a realistic timeline.
How long will your company’s financial supports last?
Be honest with your balance. Use your working capital and residual income to calculate how long your business will last.
Do you expect your financial situation to change?
Tax refunds can be issued or you can expect the high season for your product to come soon. If you look back over the past few years, whether you ran a physical store or an online store, you were likely to receive more orders during certain times of the year.
Do you need temporary savings or long-term layoffs?
Think about your answers to the weather questions above. They will help you decide whether your cost reduction strategy:
Bridging the Gap: Your business is relatively healthy and new income is coming. Until then, temporary cost-cutting will help keep your business running while you wait.
Creating structural change: The costs of running your company are usually high, so you have little chance of building a secure stand. In this case, you must continue to lower your costs.
What are the main costs?
How Much Does Your Company Cost? For example, at this time you may not need this premium e-learning subscription, but you will need an internet connection. Every company spends a little money on things that are not necessary but that make life easier.
If we want to cut costs radically, we need to look at what is needed to keep our business afloat. Everything that is “nice to have” could probably be cut back.
Not sure if something should be on your “fun to have” list? Wondering how long you could run a business without this element and what would happen if you didn’t have it.
The specific requirements differ for each industry and each company. Once you have a list, double-check each item. See if you can:
- Replace with a cheaper option
- Replace with a free option
- Please downgrade to use only what you need
Hint: This post focuses on costs that can be cut. However, make sure to check how much you are being charged. Here are some tips on how to find out if you’re charging enough and how to raise your prices to keep customers happy.
Ideas on how to cut costs for small businesses
Recurring and operational costs
It is a recurring expense for most businesses, not a one-time expense that matters most to profits over time. By lowering these monthly or yearly costs, you are essentially making your business run cheaper. You may be able to pause and continue for a while as things get better.
Here are some recurring costs you can save:
Rent and mortgage
The biggest step is moving to a smaller office or working from home. You may also consider sharing your workspace with others to share the rent.
Review your policy to make sure it is up to date and that you are not paying for more than what you need. Purchase if you have worked with the same insurance company for a long time
Company bank account
Switching to a bank or other account type can save you money. If you accept payments in multiple currencies, finding an unlimited bank account like TransferWise can save you currency conversion fees.
With so many options online, free or freemium, you can find affordable versions of most business software. Or maybe you don’t need the service at all – you can go back to writing invoices manually for a while instead of using billing software, for example.
Retirement and pension
Get advice before making any changes to your retirement or pension plans. Reducing payments to save money during hard times should only be the worst and temporary case.
How often do you use your work phone for online chats, video calls, and e-mails? Do you need a monthly plan or are the prepaid options sufficient? Most phone providers allow you to check your average monthly usage online. If not, please contact them for this information.
Trip to office
If you need to travel for work, see if there are cheaper options if you travel at a different time. Do you have to be “on-site” every day? Take a look at your schedule and see if there are days when you can work from home even once a week.
Business clubs such as local Chambers of Commerce are great for networking and often offer large benefits to their members. But they can be expensive. After you join, find out if you can suspend your paid membership. These organizations can also offer support to members in need.
Automatic transfers to business savings accounts
Under normal circumstances, spending money in a savings account every month is good. In times of trouble financially, you can stop these payments and use the money to cover significant expenses.
How much speed and bandwidth are you paying for? Do other providers offer the same thing at a lower price? Can you get the job done with a cheaper option? Sometimes call your provider and ask if they can reduce your monthly bill.
The price differences between suppliers are usually not very large. However, if you use a lot of electrical equipment for your work, switching suppliers can be beneficial.
Do you keep heating up in the office or workshop even when you are not there? While this can save heat when you go to work, it’s also a luxury you can’t afford. Adjust your thermostat settings and make sure you don’t waste money on unnecessary heating.
One-time payment or irregular payments
These are the things you buy when your business needs them. Look for this purchase in your checking account:
No business lunch is required. And coffee and tea in the office don’t always have to be big, expensive brands. Various options will help you save.
Work tools and equipment
You want to work with the best tools. However, if you can’t afford the best tool right now, try repairing the laptop or sending in repair kits instead of replacing it.
Company uniforms and swag
It’s nice to have a specific look, but this might be a good time to cut back on brand-name t-shirts, gifts, and other extras.
Team events and a little extra for your employees
It’s time to keep your team together. So, instead of canceling, look for a cheaper option. In the evening, enjoy games and pizza in the office instead of a cocktail in the middle.
Canceling a ticket that has been purchased helps your cash flow. Also, check your visit for free events. Is it better to spend this time on your assignment or will the event attract new customers?
Course and training
If you’re keeping costs down, you may have to delay or abandon professional development. This may be different if you learn new skills that will allow you to serve more customers. Consider free or cheaper courses to cut costs.
Is there a way to cut your marketing costs? If your budget is tight, make sure you only advertise to an audience that is likely to buy from you or take a closer look at free ways to promote your business such as creating a professional logo so customers can recognize you.
Stock and product changes
Any stock or ingredients that you have purchased but have not sold represent potential profit. If current sales are slow, your current inventory will last longer so you want to avoid unnecessary inventory and expenses.
Consolidate storage space
If you rent storage space, try resetting your inventory. Instead of loading each item, see if you can work with less space and maybe reduce your rent.
Cut down on office supplies
Most offices have more supplies than they think. Before ordering again, use what you have and try to use less: print less, take digital notes and send email instead of letters and envelopes
Suggest fewer options
Are you having trouble getting your ingredients or materials? Cut down on your menu with fewer dishes or remove hard-to-reach items from your online store for the time being. As long as you still have reasonable choices, you can keep your business while saving on products and materials. Most customers will be happy that you are still open, especially if you can keep this top bestseller.
Ask for help before piling up debt
Don’t wait until it’s too late to take action. The company can usually extend the payment deadline if you ask in advance. Governments often have the option of deferring tax payments or offering better interest rates than commercial creditors. And lenders are usually willing to work with you if you let them know as soon as you run into repayment problems.
Then seek professional help. There are people with experience and knowledge who continue to help companies with this challenge. A tax advisor can help you review possible deductions. An accountant can review your expenses and help you find savings. Your local network of companies may have advice and support.
Special economic measures during COVID-19
The global economy is already feeling the impact of the current pandemic. Most governments already have emergency funds and business support. Learn more about what to do if the coronavirus disrupts your small business.
You are not alone
If you delay cutting costs, this can be a difficult exercise. By getting a clear picture, you are also taking big steps towards getting your business back to financial condition. So don’t despair. If you adjust and pay attention to the situation, you will feel better in the long run.