In the aftermath of the lockdowns that resulted from COVID-19, businesses and organizations that were forced to close or limit services will be looking to do whatever they can to lower their expenses, increase cash flow, and survive in a much tougher economy. If your business is in a similar position, know that the work you do to reevaluate your business expenses can help you to stay afloat now as well as prosper down the line. Here are some tips on how to cut costs.
Pay Off Debt
If your business is in a triage situation, paying off loans or credit immediately may not be possible, but eliminating unnecessary debt should be a goal. You’ll want to look at any debt the company has and determine how much of your revenue goes to servicing it. In the short term, it’s a good idea to see if you can renegotiate a better rate or refinance your debt so it cannot weigh your company down. If you can only pay off small loans, that’s still valuable, and it feels empowering.
Eliminate Unnecessary Expenses
Many businesses have unnecessary expenses that continuously drain their profitability. They may not even know that they are being charged or charged more than necessary until they take a hard look at how they are spending their money and what those expenses add up to annually. This tends to be particularly true with subscription services. The first step, then, is to audit your budget and expenses. The second step is to determine which expenses are truly necessary. One way to do this is to ask yourself if the business could keep going without it. If the answer is no, eliminate it.
If your company is leasing space, are you using all of it? Can some of your staff work or continue to work remotely? If you relocated to a smaller building or a less expensive location, how much could you save money on rent, utilities, and insurance? Negotiating with vendors is another option. Because it takes so much less effort to keep a customer than gain a new one, many vendors will be willing to reduce costs, especially if you have an established relationship.
It’s easier to pare down variable costs like office supplies and travel than it is to lower your fixed costs, but with some effort you can reduce both types of business expenses.
Buy in Bulk
Buying in bulk is another way to save money. While you’re negotiating other expenses with your vendors, ask for a discount on your materials, your office supplies, or anything you might have the space to store. Software subscriptions can also be bought at a discount in bulk. Be careful choosing which subscriptions to keep, though. Many different types of software or apps offer the same or similar functionalities. Select the ones that best and most comprehensively meet your needs and then train your staff to use those. It’s also good to periodically reevaluate them based on input from your staff about what’s working.
Skimping on staffing costs is rarely a successful strategy for saving money. Paying bare minimum wages will not attract the best talent to your business. In a very competitive labor market, it will ensure you will get only those with few options and will be stuck retraining your workers often because they will not stay. When you find good employees, reward them well and then train your talent to do multiple tasks.
In contrast, for repetitive tasks, automating will save you money. Purchasing software that will allow you to automatically contact customers either for marketing or to touch base after a sale, will save money. Adding checkout kiosks will too. Managing inventory with software and scanning tools is also much cheaper than paying workers to do it manually.
Bring in the Experts
There are some tasks an owner can do himself. Other areas, such as taxes and accounting, should be left to an expert. Tax requirements change from year to year. Financial planning is complex. Consulting an accountant to help you determine which of your business expenses are really necessary is a one-time cost that can save you tremendously over time. The same is true with taxes. You do not want to overpay in taxes, and if your business is struggling to hold on, you want to know if you can reduce your tax burden now. Many companies applied for and received Paycheck Protection Program (PPP) funds from the government to help them survive the lockdown. A tax expert may be able to help determine what those businesses need to do to repay those loans or have them forgiven entirely.
Finally, be careful when deciding about cutting your marketing. In a down economy, your marketing budget will go further and you will be able to reach customers you might have to compete for when times are better. Increasing revenue by expanding your client base is another way to climb out of a hole.
The above tips are good ideas to consider if you need to reevaluate your business expenses to remain competitive or keep your business afloat. They are also useful for increasing your company’s profitability during good economic times. Make time to discover what is and is not working for your business. From there you can make informed rather than emotional decisions.