When you run your own business, it’s not always smooth sailing. Sometimes you need to cut costs to stay afloat—now more than ever.
When it comes to saving money for your small business, you might have more options than you think. Whether you need to reduce expenses temporarily or over the long-term, small changes can have a big impact.
In this article, we’ll cover three key questions that will help you build a cost-cutting strategy followed by our favorite money-saving tips to get you started:
- How much time do you have?
- Do you need to make temporary savings or long term cuts?
- What expenses are essential?
- 20+ ideas to reduce small business costs
We are not financial advisors. In this article, we’ll give some suggestions on how to approach cutting costs. Any actions you take should be based on your knowledge of your own company and we always recommend speaking to a financial advisor if you’re not sure.
How much time do you have?
Making smart choices starts with a realistic timeline.
- How long will your company’s financial buffer last? Have an honest look at your bank balance. Calculate how long your business can run based on your current funds and remaining income.
- Do you expect your financial situation to change? You might have a tax refund coming or expect the peak season for your product to pick up soon. Look back at previous years, whether you run a brick-and-mortar or an online store you probably get more orders at specific times of year.
Do you need temporary savings or long-term cuts?
Think about your answers to the timing questions above. These will help you decide whether your cost-cutting strategy needs to:
- Bridge the gap: Your business is in reasonably good health and new income is on the way. Until then, reducing your expenses temporarily will help keep your company running while you wait things out.
- Create structural change: The costs of running your business are generally high, leaving you with little chance to build up a safety buffer. In this case, you may want to consider reducing your costs permanently.
What expenses are essential?
What are the costs your business can’t do without? For example, you might not need that premium e-learning subscription right now, but you definitely need an internet connection. Every business spends some money on things that aren’t strictly necessary but that make life easier.
If we want to cut costs radically, we should look at what our businesses need to exist. Everything else that’s “nice to have” can potentially be cut.
Not sure if something should be on your “nice to have” list? Ask yourself how long you can run your business without this item and what would happen if you didn’t have it.
The specific requirements are different for every industry and every business. Once you have your list, review each item. See if you can:
- Replace with a cheaper option
- Replace with a free option
- Downgrade to use only what you need
Tip: This post focuses on the costs you can cut, but don’t forget to also review how much you charge. Here are some tips on how to know if you’re charging enough, and how to raise rates in a way that still keeps customers happy.
20+ ideas to reduce small business costs
Recurring and operating costs
For most businesses it’s the recurring costs, not the one-off expenses, that make the most difference to your bottom line over time. By reducing these monthly or annual costs, you essentially make it cheaper to run your business. You might be able to pause some too and resume when things get better.
Here are some recurring cost you could save on:
Rent and mortgage
The biggest steps would be moving to a smaller office or working from home. You can also consider sharing your workspace with others to share the rent.
Check your policies to make sure they’re up-to-date and you’re not paying for more coverage than you need. Shop around if you’ve been with the same insurer for a while.
Company bank account
Switching to a different bank or a different type of account might save money. If you take payments in lots of different currencies, looking into a borderless bank account like Transferwise could help you save on currency conversion fees.
With so many free or freemium options available online, you can find versions of most business software at low prices. Or maybe you don’t need the service at all—you could go back to writing invoices manually for a while instead of using billing software, for example.
Pension and retirement
Get advice before you change any retirement or pension plans. Reducing payments to save money through a difficult time should be a worst-case and temporary option only.
How often do you use your company phone vs. online chats, video calls, and emails? Do you really need a monthly plan or is a prepaid option enough? Most phone providers will let you check your average monthly usage online and if not, contact them to request this information.
If you need to commute, see if there are cheaper options if you travel at a different time. Do you need to be “on-site” every day? Look at your schedule and see if there are days you could work from home, even if just once a week.
Business clubs like your local Chamber of Commerce can be great for networking and often come with great membership benefits. But they can be pricey so if you’ve joined one, find out if you can pause your paid membership temporarily. These organizations might also offer support for members in need.
Automatic transfers to a business savings account
Under normal circumstances, it’s great to set money aside every month in a savings account. In financially challenging times you can stop those payments and use the money to cover essential expenses.
How much speed and bandwidth are you paying for? Would a different provider give you the same for less? Can you do your work with a cheaper option? Sometimes calling your provider and asking if they can lower your monthly bill actually works!
Price differences are usually not very high between providers but if you use many electrical appliances for your work, switching providers might be worth it.
Do you leave the heating in your office or workshop ticking over even when you’re not there? While this can save you cranking up the heat when you arrive at work it’s also a luxury you can do without. Adjust your thermostat settings and make sure you’re not wasting money on unnecessary heating.
One-time or irregular expenses
These are the things you buy when your company needs them. Look for these purchases in your bank statement:
A business lunch doesn’t have to be fancy. And coffee and tea at the office don’t always have to be from expensive big brands. Different choices help you save.
Work devices and tools
You want to work with the best tools. But if you can’t afford the best tools right now, try working with refurbished laptops or sending devices in for repairs instead of replacing them.
Company uniforms and swag
It’s nice to have a certain look, but this might be a good time to cut back on company-branded t-shirts, gifts, and other extras.
Team events and small extras for your employees
This is a time to keep your team together. So instead of cancelling, look for cheaper options. Have a games and pizza night at the office instead of cocktails downtown.
Canceling already purchased tickets helps your cash flow. And even for free events, reconsider your visit. Would it be better to spend that time on your tasks or will this event bring in new customers?
Courses and training
If you’re cutting costs, professional development might need to be postponed or canceled. That could be different if you are learning a new skill that will help you serve a broader range of customers. Consider free or cheaper courses to cut costs.
Are there ways your marketing costs can be reduced? If you’re on a budget, make sure to only advertise to target audiences who are most likely to buy from you, or look more closely at free ways to promote your business.
Stock and product changes
Any stock or materials you’ve bought but haven’t sold yet represent potential revenue. If sales are slow right now then your current stock will last longer, so you’ll want to avoid unnecessary inventory and costs.
Consolidate storage space
If you rent storage space, try rearranging your inventory. Instead of restocking every item, see if you can work with less space and potentially reduce your rent.
Reduce office supplies
Most offices have more supplies on hand than they realize. Before ordering even more, use what you have and try to use less: print less, make digital notes, and send emails instead of letters and envelopes
Offer fewer options
Struggling to get hold of ingredients or materials? Slim down your menu with fewer dishes or remove hard-to-stock items from your online shop for a bit. As long as you still have a reasonable selection, you’ll be able to keep your business running while economizing on products and materials. Most customers will be delighted that you’re still open, especially if you can keep those all-important best sellers in stock.
Ask for help before debts mount up
Don’t wait until you’re behind on your bills to take action. Companies can usually extend payment deadlines if you ask them in advance. Governments often have options to defer tax payments or will give you better lending rates than commercial lenders. And lenders will usually be willing to work with you if you let them know as soon as you have problems paying.
Then, look for professional help. There are people out there with experience and knowledge who help businesses with these challenges all the time. A tax advisor can help you look at possible deductions. An accountant can go over your expenses and help you find savings. Your local business network might have advice and mentorships available.
Special economic measures during COVID-19
The global economy is already feeling the impact of the current pandemic. Most governments have already set up emergency funds and support for businesses. Learn more about what to do if the coronavirus disrupts your small business.
You’re not alone
If you’ve been putting off cost-cutting, it might be a tough exercise. But by giving yourself a clear overview you’re also taking a big step in bringing your business back to financial health. So don’t lose hope. Dig in and address the situation, and you’ll feel better for it in the long run.