JUNE 24, 2021
With inflation and rising prices, higher wages and employee benefits, and other pressures on profitability, it’s essential for small businesses to look carefully at ways to reduce expenses. In some cases, it’s merely eliminating fat—big or small—from the budget; in others, it’s adopting different business practices that are less costly. The more you cut, the better your bottom line. And reducing outlays eases up on cash flow demands.
Here are 25 ideas, presented in no particular order, to help you trim your expenses.
Pay off debt. The less you pay out in interest, the better. This is especially important now with interest rates rising on lines of credit and, likely, on business credit cards.
Switch banks and credit cards. Cut fees and charges by finding the best bank and credits card to use for your business. And there may be rewards for opening a new bank account. CardRates.com lists the best credit cards for small businesses this year.
Re-think your advertising. Consider eliminating some paid ads in favor of no-cost social media efforts.
Retain valued employees. It’s expensive to replace employees. One source estimated the cost of recruiting and training a new employee is 2½ to 3 times the salary for the position (e.g., $150,000 for a $50,000 per year employee). Even if it doesn’t cost you this much, recruiting and training isn’t free.
Use independent contractors. Where it makes good business sense, use contractors instead of employees to get work done. It was estimated some years ago that it can save a business 30% by engaging independent contractors instead of employees. But you can’t simply labor workers as contractors if they’re really employees, so be sure to understand worker classification. Your state may have other criteria (e.g., California’s ABC test).
Implement AI. This technology adds efficiency. For example, given today’s hiring difficulties for many small businesses, AI can handle certain tasks that would otherwise require the need for employees. An upfront cost may be modest compared with the savings on payroll in the long run.
Review cellular service. With 5G being widely introduced, be sure your company plan is appropriate. There may be deals available to save you money. Check Digital Trends for the best cell plans for small businesses.
Cancel subscriptions. If you don’t need them, why automatically renew them? This may be subscriptions for magazines, apps, and various services. If you need a particular article, try finding it for free on the internet.
Resign from organizations to cut dues. It’s great to be a member of an organization, but only if you participate. If you simply renew year after year but get nothing out of it, why pay for membership?
Revise insurance coverage. You may be paying for coverage you don’t need. Be sure to discuss your current situation with a knowledgeable insurance agent so you don’t over-insure.
Increase insurance deductibles. Increasing deductibles lowers annual premiums. Yes, it costs you more out-of-pocket if you make a claim, but hopefully you don’t need to do this often. Result: Over time you’ve saved money even if you have to make a claim at some point.
Change to electric vehicles. If your business needs a new car or truck, think EV. Doing so helps the environment as well as saving you money. Use a calculator to see potential cost savings. Check for tax incentives as well from the federal government for buying an EV as well as at the state and local levels.
Adjust the thermostat. Whether this means making it a little warmer in the summer and a little cooler in the winter, the savings on utility bills can be significant. Energy Star says you can save as much as 10% a year on heating and cooling by simply turning your thermostat back 7°-10°F for 8 hours a day from its normal setting. When leaving the office, adjust the thermostat.
Switch to LED lighting bulbs. According to a nonprofit energy supplier, it costs $240 to light an incandescent bulb for 25,000 hours, compared to the $40 it costs to light an LED. You do the math, but there’s clearly big savings over time.
Power down equipment. Machines and appliances that don’t have automatic energy-saving features should be turned off when not in use to safe on electricity. Before locking up at the end of the day, add the chore of checking that desktop computers and other equipment has been turned off (especially at the end of the workweek so they don’t run needlessly over the weekend).
Limit business travel. As we learned during the pandemic, we can meet with customers, clients, vendors, and other business associates online rather than in person. The cost for virtual meetings via Zoom or other websites is zero or minimal compared with the cost of traveling, whether by car, plane, or other means of transportation.
Purchase supplies wisely. Look for discounts or sales on office and cleaning supplies you use. Check Costco and other buying clubs for the best deals.
Use bartering. You can exchange your goods or services for things you need (e.g., advertising). For tax purposes, you still have to report as income the goods or services to expend, but at least you don’t have to use cash to obtain what you receive in exchange.
Avoid penalties and fines. Even a parking ticket may be pricey…and a waste of money. The failure to renew business licenses may be subject to penalty, so watch the clock for deadlines. Similarly, check estimated taxes so avoid underpayment penalties (they’re not deductible).
Reuse paper. It may seem like a small thing, but there’s a lot of waste…just look at the wastebasket next to the copy machine. Shred used paper which can then be used as packing material. Besides budget savings, it helps the environment to cut down on paper use.
Renegotiate your lease. With demand for commercial space very soft now, your landlord may be willing to reduce the rent or make other concessions in order to keep you as a tenant when your lease comes up for renewal. Here are some tips on how to negotiate a commercial lease.
Reduce lease costs. If you aren’t using all of your space (e.g., employees are working from home permanently), then sublease if you are permitted to do so under the terms of your lease.
Take advantage of early payment discounts. Vendors may offer reductions to invoices if they’re paid early (e.g., 2% savings for immediate payment rather than the normal 30 days).
Use tax-saving strategies. Cutting taxes by taking advantage of tax breaks reduces your business tax obligations. For example, check with a tax advisor to see if your business qualifies for a research credit (the credit isn’t limited to big tech and drug manufacturers).
Limit inventory. This will reduce warehousing costs and likely financing costs as well. Order and re-order items judiciously.
Final thought
An often-quoted adage is “A penny saved is a penny earned.” While attributed to Benjamin Franklin, it was actually coined by someone else much earlier. Nonetheless, the sentiment holds true today. Spend some time thinking about ways to save your company money and you’ll be rewarded in more modest cash flow and better profitability.