Small businesses can become cash-strapped for lots of reasons, some of them beyond your control: seasonal fluctuations, natural disasters, and world events (we’re looking at you, COVID-19). If your business needs to cut costs, it’s important to do so with a coherent plan in mind — you don’t want to hurt your business’ long-term viability when you make sacrifices for the short-term.
In general, small business owners have a few primary areas where they can cut expenses:
- Employee payroll
- Capital costs, like equipment purchases
- Rent and utilities
- Advertising and marketing
- Nonessential or discretionary spending (charitable donations, employee bonuses, costs to entertain clients)
In this article, we’ll give you nine tips you can use to evaluate your expenses and implement sensible cost-cutting measures.
#1: Reduce Nonessential Expenses
Now is the time to keep a tight hold on the company credit card. Check every discretionary expense to look for ways you can save. Unless a particular expense is critical to your business’ health and development, you should reduce or eliminate it.
Even if you’ve already signed a contract or made a commitment to spend money, don’t write off that money as spent and gone. If you contact the other party or service provider and explain your company’s current situation, they may be willing to cancel the contract or renegotiate its terms or interest rates, especially if they’re a long-term partner or are likely to become one. In the end, they may say no, but it never hurts to ask.
#2: Consolidate the Business Expenses You Can’t Cut
Even the most cash-conscious businesses have to make nonessential expenditures once in a while. If you can’t get rid of an expense, look for ways to consolidate.
For example, maybe you’ve determined you can’t do away with every celebration and team-building event because it would damage employee morale. Rather than canceling these events entirely, look for ways to combine them and reduce their frequency for an overall cost savings. You can also try to combine social activities with employee training sessions and other vital employee development efforts.
#3: Look for Ways to Save on Office Space
If you’re dealing with a down market or economic downturn, then chances are your business isn’t the only one hurting. The upside of a bad business climate is that prices for office space and commercial real estate tend to fall. You may be able to use this to your advantage and negotiate with your landlord for a better lease or move to a newer, more budget-friendly space.
If you run a solo operation or a small business with very few employees, it might be time to reconsider whether you need an office. Doing business out of your home can save you a fortune in rent, and it can also open up various tax breaks and deductions. Just make sure to do some research before you make the move — in many areas, zoning issues and local bylaws restrict the type and scale of businesses that you can operate out of your home.
#4: Re-Examine Your Advertising Costs
Don’t stop advertising altogether just because you’re cutting costs — marketing is essential to your business’ long-term health and growth. However, marketing can also burn up a lot of money, so you need to judicious with your budget.
More and more businesses connect with the majority of their new customers online, and digital advertising is often much more affordable and cost-effective than traditional media like billboards and TV ads. If you’ve been spending money on expensive ad space like a billboard or newspaper ad, you can probably cut that expense, take half of it and reinvest it in your web presence, and still get more long-term value than you were before.
Even if your business doesn’t have a website and you can’t afford one right now, you can still start building a web presence. You can create business pages and profiles on social media sites like Facebook, Yelp!, and Google My Business for free and start connecting with potential customers online.
#5: Try to Reduce Your Debt
If you’re behind on the bills and creditors are calling, you may want to ask whether your creditors are willing to restructure your debt or provide some payment relief. This strategy will probably work better with some types of creditors than others; a credit card company probably won’t offer you much help, for example. However, lenders and independent financial partners like Team Financial Group have many different options available to help you in these types of situations. We would always rather work with a customer than see them fail.
The most important element to working with your creditors is communication. The sooner you let a creditor know that you may have trouble making payments, the better. If you can work with your creditor and come up with proactive solutions before you start missing payments, then you may be able to avoid consequences like negative items on your credit history and collection actions.
#6: Be Careful About What You Buy
Your business can’t stop spending money altogether. You still need to pay for the essential equipment you need to do business, whether it’s maintenance, upgrades, or purchasing new equipment that you absolutely need. You also need to pay for essential business costs like phone and internet service, utilities, custodial services, and payments to vendors.
However, just like we discussed with real estate, an overall down market can give you some leverage to renegotiate prices on essential expenditures. Your vendors and partners may give you a lower price if you make it clear that it’s necessary. And don’t be afraid to shop around — now is the time to take bids and re-evaluate vendor relationships to see whether they still make sense for your business. This advice holds true whether your business needs to purchase heavy equipment or small office supplies.
You also don’t have to sacrifice your business’ bottom line to get the equipment you need. At Team Financial Group, we specialize in providing fast, flexible equipment financing for businesses of all sizes. We can work with you to find an affordable, customized financing option that makes sense based on your business’ current financial situation and unique needs.
#7: Lower Your Insurance Costs
Since insurance is so essential for any business, it can be an easy area to overlook when trying to save money. Under no circumstances should you eliminate essential coverage for natural disasters, theft and vandalism, or liability. However, you may be able to reduce your payments, even for essential coverage.
Check out some different insurance providers and try to find the most competitive rates. Then, ask your current provider if they can match that rate. You can also take stock of your policies to make sure you don’t have any redundant coverage and look for opportunities to consolidate policies under a single carrier. And if you’re in a bind and still need to cut insurance costs further, you could ask about increasing your deductibles to lower your premiums.
#8: Consider Personnel Changes
It’s not fun to think about laying off employees, but if your business is facing serious cash flow challenges that threaten your survival, you may have no choice. Ask how busy your employees are and whether every position is truly essential. Consider every option as being on the table, whether it’s consolidating positions, moving full-time employees to part-time work, or hiring freelancers.
But before you fire someone who’s not as productive as you’d like, make sure the problem lies with the employee. Ask whether your staff has the tools they need to get their work done efficiently. Look for inefficiencies, distractions, and timewasters within your company policies and culture, whether it’s meetings, departmental structures, or communication practices. You can downsize your team, but if you’re not putting employees in a position to succeed, you won’t get outstanding results from a team of any size.
#9: Cut Employee Perks and Benefits
Slashing benefits hurts, but most employees can handle it if they understand that it’s temporary and may be saving their jobs. During a crisis, you may need to suspend certain employee benefits. Don’t sacrifice your employees’ health plan unless it’s the only way to survive — losing health insurance puts your employees in an extremely risky position and could drive away your best workers. However, it may be appropriate to suspend or reduce other benefits and perks like free meals in the breakroom, employee wellness programs, and gym memberships.
Be transparent with your employees about the company’s current cash flow and financial situation. Let your workers know why you’re changing their benefits and how long they can expect the changes to last. If you’re going to make policy changes that make life harder for your employees, the least you can do is be honest with them throughout the process.
Partner With Team Financial Group and Get Fast, Flexible Financing Today
At Team Financial Group, we offer flexible payment terms tailored to meet your business needs. Even if you have a low credit score, don’t get discouraged — our commercial financing experts are here to help, and we’ve been able to provide financing for businesses with all types of unique circumstances. Our application process is easy and won’t affect your credit score, so apply today to get started.
If you have any questions about the financing application process or which financing option is right for your business, fill out our online contact form or call us at 616-735-2393. We’d love to chat with you about your options.
The content provided here is for informational purposes only. For financial advice, please contact our commercial financing experts.