Companies have dozens of cost-cutting strategies, but which is the best for you?
Unfortunately, business expense reduction is not an overnight process. However, with thoughtful planning and a long-term focus, you can reduce costs without sacrificing or affecting the normal functions of your business.
With the potential for a recession, increased interest rates, reduced bond rates, and more, the economy (and your business) is in flux. Read on to learn about tracking expenses, valuing time, and growing your business.
Nice to Have vs. Have to Have
Consider the “fat vs. muscle” approach with your business expense reduction strategy. Removing some of the fat is OK since that’s not as sustaining as muscle. However, sometimes the muscle has to be trimmed, too. If you’re unsure how to balance expense control with the need to sustain the business in the future, consider which parts of your business are muscle and which are bone.
A high-profile office is impressive, but you might only need a first-floor office for your skeleton crew. You might want your most qualified employees on site every day, but you need to have motivated employees that have a work-life balance and have become accustomed to working from home. You will pay a premium for the penthouse and a premium for qualified and motivated onsite staff.
Business Expense Reduction Examples
Often examples are a great way to understand the value of a strategy, and there’s no more relevant example than that of COVID-19 and the shifting workplaces.
The most cost-effective way companies reduced costs over the past few years is to let people work from home — saving on footprints at work and the associated expenses of heating, cooling, cleaning, and maintaining a physical office. The reduced garbage, maintenance, and utility costs cannot be overlooked.
Cash flow management is essential at any company growth stage—more money in, less out. However, not all money out should be reduced. For example, consider marketing, sales training, and morale-boosting programs. Most of these programs show returns within a year, so the effects of an immediate cut might not be seen for up to 12 months.
Here are ways to look at your organizational health as you consider your business expense reduction:
- Track every expense carefully – you cannot gain insights into your spending without an accurate picture of your spending
- Learn from your competitors and industry – it’s easier to learn from the mistakes of others than to recover from your own mistakes.
- Challenge every fixed cost – try to renegotiate your lease, fleet, or insurance.
- Tight scrutiny on your variable costs – phone, Internet, trash, heating, and cooling
Business Expense Reduction Tips
There is no one-size-fits-all approach to reducing your expenses. Every business is unique and requires different solutions. Further, you cannot permanently “save” your way to success — making money takes money. Business expense reduction is smart when there are expenses to cut — not when they generate revenue.
If you’re wondering how to lower business expenses, consider these tips:
- First, control your credit – Keep your spending below 30% of your overall credit limit, and always pay your bills on time.
- Hire a professional – They likely know the ins and outs of business loans and grants or can direct you to someone who specializes.
- Be more innovative – Companies that can save more than they spend can benefit from “emergency funds,” but spending intelligently now can save more significant sums later.
- Use technology – use financial platforms to understand your company’s health, help you make intelligent hires, or consolidate where necessary.
A promising sign of organizational health is a healthy balance sheet. “More money in, less money out” is a great motto. However, you cannot move to a zero-spend model without sacrificing your long-term business. For more help on how to lower business costs, contact us today for small business consulting. Click here to sign up for my free weekly blog articles.