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Posted by Erik Larson - 18 January, 2019

How to reduce expenses in small business

Every entrepreneur knows there’s risk involved in going out on your own.

But no one wants to imagine a situation where the business is in trouble. Typically, this kind of thinking isn’t in an entrepreneur’s DNA.

But the reality is that the good times won’t last forever. There are things out of your control, such as market trends, changes in regulations and natural disasters, not to mention constantly changing customer preferences, that can all set your business heading in the wrong direction.

However, falling on bad cash flow doesn’t mean you’re doomed. It just means you need to take a look at your business and find out where you can be doing better. Obviously, you’ll want to find ways to boost revenue, but this can take time.

So while you wait for your income to increase, you may want to consider cutting back on a few things. But you can’t just slash everything and hope it all works out. You need to be smart about it, and to help you do this, here are some of the first things you should cut back on when times get tough.

The Logic of Cost-Cutting

Before going into the specific areas where you could cut costs, it’s important to spend a moment discussing the logic behind cost-cutting.

In general, you only want to cut in areas that aren’t going to affect revenues.

For example, a lot of times businesses will look to reduce their marketing and advertising budgets during tough times, but this doesn’t always make sense.

Think about it: if things aren’t going well, then why would you hold back one of the areas of your business responsible for driving it forward? Now there may be areas where you can become more efficient, or the data may tell you that one part of your strategy simply isn’t producing returns, and this means you should be rethinking your approach.

But make sure your cuts are strategic and not haphazard.

Overall, the first things you should be trying to cut back on are your extraneous expenditures.

Doing this will help you continue to do the same if not more with your business for less, helping to expand margins and get things back on track. Here are some specific areas where you could do this.

 

Office Space

While it’s nice to have a big open office where people can meet and hang out with each other, the reality is that this isn’t always practical.

Rent for office space can be extremely high, and these aren’t exactly things you can negotiate given how much they are in demand.

office space expenses

As a result, when times get tough, you may want to consider moving to a smaller office. Or, you may want to think about not having an office at all.

Thanks to the internet, most people will likely be able to do their jobs remotely, and they will often welcome this change to their working arrangement. Consider giving this option to some people so that you can reduce your office space and cut back on one of the biggest parts of your overhead expenses.

 

Business Services

We tend to rely on a wide range of services to make our businesses run.

From software to electricity to broadband internet, there are a lot of things we simply must pay for. But the B2B market is a competitive one, and if you spend some time looking at alternative options, you’ll likely find there are multiple areas where you can save.

For example, most of us have the idea that there are only a few internet service providers in our area. But this simply isn’t true.

Top Electrical ExpensesSource

In recent years, many new companies have popped up that can offer the same if not better service than the big companies but for far less money. And since they’re trying to make inroads in the market, you can expect them to offer some sweet promotional deals that will help you dramatically reduce operating expenses right away. Do a search of ISPs in your area to see if you could be spending less.

And while you do this, also take a look at some of your other services. There is a lot more competition for utilities such as gas and electricity than there ever used to be, so there may be ways for you to reduce your bills and improve your margins without having to really change much about what you do.

Staff

This is one of the trickiest parts of any cost reduction strategy. Obviously, payroll represents a huge chunk of our operating expenses, but no one wants to lay people off, especially since doing so can ruin company morale.

But there will be times when this is necessary.

So, when you reduce staff, make sure you’re not taking too much of a productivity hit. You could ask some people to switch to part-time, or you could implement some automated solutions that will help people do more with less.

Another option is to outsource some work. This isn’t always popular, but it’s a way to keep people working while reducing labor costs.

Staff ExpensesStaff

If you do need to lay people off, though, be honest with them. Let them know if there’s a chance they could be hired back, and if there isn’t, then do everything you can to help them find a new position somewhere else.

It’s the least you can do and it will help make these changes easier to swallow for those who remain at the company.

 

Equipment and Supplies

No one likes to have their pen, pencil and paper use monitored, but these expenses can add up if you’re not careful. Sometimes something as simple as a meeting or a memo asking people to be more conscientious of how they use materials can do the trick, but you can also just cut back on your orders and wait for people to adapt.

Largest expensesSource

However, if you do this, make sure you’re providing people with adequate tools to continue doing their jobs. For example, if you’re going to reduce paper and pen orders, then consider signing up for a service like EverNote, as this will allow people to do the same thing but for much less.

 

Take Small Steps

The best thing you can do is to introduce these changes gradually. Keep your finger on the pulse of the business, and if you see things turning downwards, then start making some small cuts.

Get everyone onboard with what you’re trying to do, and work together to make the business more efficient. This will not only make it easier to survive the tough times, but it will also increase your chances of long-term success.

Summary


 What are the first expenses to cut when things get tough?

  1. Office Space
  2. Business Services
  3. Staff
  4. Equipment and Supplies
  5. Take Small Steps

Control your company's cash flow

About the Author: Kevin is the founder and CEO of Vast Bridges, a customer acquisition and lead generation service based out of Jacksonville, Fla. His primary goal is to help businesses grow by developing and implementing a strategic vision, which sometimes also includes a plan to cut costs. Over the past seven years, he has helped thousands of businesses find new customers and markets, and he plans to continue doing so well into

Topics: Finance, Management

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