Tips for Cutting Small Business Expenses
Cutting 10% across the board or firing five people may cut overhead, but it is not sound business advice. These business survival tips will help you find the right expenses to cut and areas to focus on when you need to save your business.
Financial Survival Tips for Your Business
- Aggressively work on collecting your receivables. The book “The Worst-Case Scenario Business Survival Guide” says that businesses should turn over past due receivables to collectors. Or sell the invoices at a modest loss to raise cash now, a practice called factoring. Focus on improving cash flow before taking dramatic action to cut expenses. Never neglect collecting past-due bills when cutting costs.
- Stop servicing customers who have past-due bills. This prevents an accumulation of past-due or unpaid invoices while letting you focus on customers who do generate cash flow. Ralph Warner says this is especially critical for middlemen who have to pay suppliers on time regardless of whether or not customers have paid their bills.
- Cancel all non-essential travel, such as trips to elite conferences (unless presenting your product to the public), leadership seminars and morale boosters. However, you should still send successful salespeople to visit customers to keep money coming in.
- Call your service providers and ask for their recommendations in lowering the cost of service. What “extras” are you paying for that could be cut? Inquire about changes that could be made to contracts for pest control, lawn service, cleaning or security.
- Cancel your catering for meetings and gatherings. Have brown bag lunch seminars instead of catered in-house meetings. Let employees meet in the cafeteria over lunch instead of sending them out to a restaurant.
- Stop the inventory hemorrhaging. Don’t buy more inventory until the current inventory is sold or about to be shipped. Then switch to a kanban system where new parts or product are only ordered just before you run out. If you have excess inventory that isn’t selling, liquidate it to raise cash.
- Create a list of customers and their requested projects. Look at the profit margin of each project. Choose projects with a higher hourly rate or greater profit margin over projects requested by friends or picky customers who are always coming back with changes.
- Don’t expand your business when cash is short.
- Know where the money goes. Nicholas Bate in his book “Beat the Recession” says you must know the cost of everything in the business. You may be spending money on free bottled water for employees or unused company cars. By generating a detailed report on where the money goes, you could find waste that is easy to eliminate.
- Pay your own bills on time. Late fees are an expense you cannot afford.
- Streamline your supply chain. Reduce the number of suppliers so that you can get better pricing from the remaining ones.
- Don’t chase speculative business out of desperation. The effort expended when generating bids, reviewing unusual proposals or determining whether or not you could deliver on a new type of project is a cost in and of itself.
Payroll Survival Tips
- Review all human resources positions. Cancel any open job requisitions that could be done without. Delay upcoming raises if possible. However, you should not withhold performance bonuses that were already promised, or you’ll de-motivate commission based staff and front line staff on which your business relies.
- Carefully manage employees who are paid overtime. Ensure that those who are paid overtime are putting in a full day.
- Create a list of all contracts, contractors and outsourced work. Determine which projects can be terminated early or reduced in scope.
- If you need to reduce headcount, ask yourself, “Would I hire this person again?” Dave Ramsey says that if you wouldn’t hire this person again if given the chance, you should let them go. However, each layoff – Dave Ramsey refers to it as releasing someone – should be done with dignity and decency.
- Never fall behind on your payroll taxes, sales taxes, use tax or property taxes. The government will not let you negotiate down a tax bill like other creditors, and it can enforce the penalties it will assess.
- Use wise time management. Time spent in endless meetings rarely adds to the bottom line. Where possible, replace status meetings with short and simple status reports. Only use face time to discuss sensitive matters or those that require depth, and these discussions don’t need to take up the time of another dozen participants.
- Look at your business’ benefits. Cut the perks before you cut people. Send the masseuse home, or state that she can come in on Wednesdays if she rents the space. Talk to employees who receive subsidized childcare, employer paid transit passes or concierge services. What are they willing to give up if it avoids pay cuts or reductions in headcount?
- Determine whether or not interns actually benefit your business. While interns may perform clerical tasks in exchange for college credit instead of pay, they require supervision and training. Managing interns saps the productivity of full time staff. Look beyond the “free labor” of the intern and ask your employees whether there is a net benefit aside from trying out people before hiring them straight out of school.
- Reward employees who come up with innovative ways to help the business save money.
- Ask your employees what you can do to reduce turnover. Reducing turnover avoids retraining costs now and higher unemployment insurance in the future.
- Shift to small, immediate awards to lift employee morale and improve performance instead of promises of large annual bonuses or raises that may not materialize. I recommend the book “1001 Ways to Reward Employees” by Bob Nelson. Small incentives from $5 gift cards to local coffee shops to thank you notes can do wonders for employee morale without breaking the bank.
- Utilize affordable sources of advice. Contact SCORE, a non-profit business mentoring organization instead of expensive consultants. Contact local universities for industrial engineering students who need to complete a senior project equivalent to a Six Sigma project to graduate or an MBA program that could refer students who need experience in marketing.
- Always pay your employees' FICA and payroll taxes to avoid penalties from the IRS. Too many small businesses run into problems collecting taxes from employees but being late sending the money in to the state.
- Refuse to give employees payroll advances to simplify and standardize book keeping in payroll.
- Cancel the diversity training unless your federal contracts require such. You'll save the costs of the seminars and improve team relations, as well, given how these classes promote hyperawareness of demographics and assign everyone an identity based on those characteristics.
Surviving Your Insurance Premiums
- Call your insurance agent. Could you raise your building’s insurance deductible and save money? Can you lower the coverage on older vehicles? Don’t forget to tell the agent if you reduced the number of vehicles in your fleet.
- Ask your worker’s compensation insurer for tips to improve workplace safety and reduce premiums. “Chomp Comp” says that businesses should report changes in headcount and job classifications, since these are major factors in determining the worker’s compensation insurance rate. If you’ve paid premiums based on an expected 100 staff and now only have 80 people, the premiums should be reduced.
- Shop around for liability insurance, health insurance, worker’s compensation insurance and property insurance. “Small Business for Dummies” by Eric Tyson and Jim Schell warns that the services such as liability insurance offered through small business associations are not always the best deal out there.
- Review all claims carefully. Your business could save money by paying to repair vehicles without filing an auto insurance claim. Furthermore, “Small Business Survival Book” suggests contesting unfounded worker’s compensation claims and other possible cases of insurance fraud.
- Look at whether or not life insurance for employees paid by the employer are still a valued benefit in the workplace. If your employees don't care about it anymore, you can plan on cancelling it after appropriate notice is given.
Tips for Cutting IT Expenses
- Consolidate software licenses. Instead of each department negotiating operating system licenses or support agreements, combine all OS and software application licenses into one, lower rate contract.
- Perform an audit of devices like computers, printers, cell phones and pagers. Deactivate and return devices that are not absolutely essential.
- Delay hardware upgrades until they are truly necessary. Your engineers may need cutting edge computers for modeling and simulation, but your secretary can easily get by on a three year old PC. Graphic designers may need dual monitors for maximum efficiency, but many call center staff could get by with a CRT monitor.
- Review your IT service contracts. Can you switch to a shared hosting environment or cloud host? Are you using less space than anticipated? Are you using less bandwidth than expected? If so, request a lower service level to reduce your monthly contract costs.
- Don’t give in to the temptation to use pirated software. Never let anyone bring software from home to use at work. However, you can and should research using open source software for use in your business.
Marketing Cost Survival Tips
- Focus on current customers, likely customers and those who haven’t bought from you in a while. These customers will generate a higher marketing ROI than drumming up brand new customers.
- Hire an MBA or marketing student to tweak your company’s blog and website to keep up with Google’s latest SEO criteria.
- Invest in tried and true marketing efforts that have worked well for your business in recent history before reinventing your outreach. If direct mailing has had good results in the past, invest in it again before you pour money into location based marketing that your customers may never see.
- Stop putting out coupons if they only bring in bargain shoppers who cut your profit margin to the bone.
- Don’t forget to request a shout-out when your business donates products or services to the community.
- Review your business’s professional membership list. While membership in the local chamber of commerce is practically essential, there may be industry associations or consortium for which there is no net benefit to the company.
- Read through your company’s profile with the Better Business Bureau, including the complaints. Resolving complaints there will do more to improve your image with potential customers than a massive marketing campaign.
1. “The Worst-Case Scenario Business Survival Guide” by David Borgenicht and Mark Joyner
2. “Save Your Small Business” by Ralph Warner
3. “EntreLeadership” by Dave Ramsey
4. “Beat the Recession” by Nicholas Bate
5. “Small Business Survival Book” by Barbara Weltman and Jerry Silberman
6. “Chomp Comp” by Barry S. Spurlock and Keith R. Wertz
7. “1001 Ways to Reward Employees” by Bob Nelson
8. “Small Business for Dummies” by Eric Tyson and Jim Schell