Cutting up a dollar bill with scissors

The Small Business Owner’s Guide to Cutting Costs

By Bryce Warnes on July 25, 2018

You already know how to cut costs.

So we put together some ideas for putting theory into action.

We’ve organized them according to level of commitment. So, whether you have a spare afternoon to spend going through your books, or you’re planning to meet with your accountant and talk high-level strategy, there’s something for you.

Happy cost-cutting!

If you’d like to download a PDF checklist of this article, you can do so here:

A list of costs being cut by scissors

25 Cost-Cutting Ideas (Checklist)

Cutting costs is the fastest way to become more profitable. Here are 25 ideas to help you get started.

Small, medium, and large changes

The following tips are organized into categories, depending on how much time an energy to have to devote to saving your business money.

Small changes are relatively simple steps you can take to alter how you use resources, cutting waste and lowering your overhead.

Medium changes take more work—you may have to do some research, or put new processes in place for your day-to-day operations. But they’ll have larger impact than small changes.

Big changes will affect some of your fundamental business operations. They take the most work and planning. They may also cost you some money upfront to put in place. But, in the long run, they can help widen your profit margin.

Small changes

Spend less on utilities

Light, water, heat—they’re easy to take for granted. Carry out a review of how your business is using utilities, and put practices in place that will cut back on waste.

For instance, if you run a retro home decorating store, make an end-of-day energy-saving task sheet for staff. Is every light switched off? Has the thermostat been turned down? Are the lava lamps unplugged?

This is also a good time to check for inefficient appliances. A toilet with a leaky valve could be trickling water 24/7. Poorly insulated windows could be leaking heat in the the colder months.

If you work out of an office, keep in mind that some electronics continue to use energy even when they’re “off.” Any device with an LCD screen will continue to consume energy, even in sleep mode. Computer monitors, printers, and teleconferencing screens are energy vampires.

Cut back on waste by making sure devices are fully powered off overnight.

Use supplies efficiently

The types of supplies you use will depend on your business. But in just about any situation, you can cut back on supplies by giving yourself (or your employees) an easy-to-follow checklist.

Maybe it only takes a few tablespoons of cleaning solution to mop the floor, but your employees are eyeballing it, and using a quarter of a cup. Maybe it should only take exactly three paper towels to Windex the windows out front, but they’re grabbing five or six every time. Make those small changes for everything, and you’d save 40-50% on supplies.

It may seem miserly at first, rationing out cleaning supplies by the teaspoon—but you don’t need to feel like a Scrooge. You can save money in the long run by making supplies amounts part of the end-of-day task list, and ensuring new employees are trained to use it.

Cut back on monthly services

Monthly services add up fast.

They could be things like:

  • Office cleaning services
  • Internet
  • Software subscriptions
  • Company phone plan

There may be steps you can take to cut back on how much you pay per month.

For instance, let’s say you have an office, and the cleaners come by once per week and do a top-to-bottom clean.

You could try switching to a twice-per-month cleaning schedule, and see how it affects the office. Is there a noticeable difference?

Maybe you only need part of a service you pay for. Using the cleaning example, it may only be necessary to vacuum the carpet once a month, whereas the staff washroom needs more frequent attention. Talk to your service provider, and see if you can adjust your service plan to save money.

Also, try to hunt down cheaper or free alternatives to services you use. For instance, if you only need to make simple edits to images for your company newsletter, you’d be better off using a free online editor than paying for a monthly Photoshop subscription.

Or, if you have landline in your office, an online phone service may be cheaper and just as effective. For example, Google Hangouts lets you make free calls from your computer or phone, even long distance.

Buy refurbished equipment

When you’re buying new equipment, favor the gently-used over the brand new, when possible.

A pickup truck with a few miles on it may be less flashy than one that’s fresh off the lot, but what does your landscaping business really need: polished chrome, or functionality?

Will your head chef walk off the job if she doesn’t get to work with a brand new gas range, or will a second-hand setup do?

Search your area for equipment suppliers that specialize in gently-used goods. Or use online tools, like Walmart Liquidation Auctions, to buy from businesses that are closing shop. It may take some research, but buying second-hand equipment could save you a serious chunk of cash.

Pay invoices early

Some vendors will charge you less if you pay your invoices quickly.

It’s not uncommon for vendors to reduce an invoice total by 2% (or something in that range) if you pay within 10 days of receiving an invoice, instead of 30.

Talk to your vendors and see if they offer this option. Then, make sure your cash flow can handle making earlier payments before going ahead.

Reduce travel costs

Business travel is tax deductible, but you may be able to save more money by cutting out some travel completely.

For instance, if you find yourself making a lot of in-person sales calls, see if your customers wouldn’t be just as happy Skyping. You may assume they appreciate the personal touch when you show up to their office. And maybe they do. But they might also appreciate chatting with their sales rep without having to feel like they’re “hosting” you.

Be smart about bulk buying

“Buy bulk, save money,” is a typical piece of advice offered to business owners who depend on fully-stocked supplies to run their operation. And vendors are often all too happy to give you a bulk discount, if it means they’ll get your money up front.

But if you typically buy bulk, take time to review how you’re using supplies. You may actually save money by buying smaller amounts.

A common example is restaurants. If you’re throwing out expired jugs of milk at the end of the week, then it may be time to look at making smaller orders—even if it means you don’t qualify for a bulk discount.

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Medium changes

Try inbound marketing

If you’re relying on older methods of advertising to attract customers to your business—whether that’s website banner ads, highway billboards, or local radio commercials—you can cut costs by trying inbound marketing.

Inbound marketing doesn’t require you to pay money to place your advertising. For instance, just by setting up a Facebook page for your business and posting frequently—sharing content your customers find useful, or news about your business—can keep people engaged and bring in leads.

Social media isn’t only the domain of large corporations. In fact, when it comes to social media, small businesses may have the edge.

Another efficient inbound marketing tactic? Blogging. It can help you promote yourself, nurture leads, and establish authority within your industry. Entrepreneur and marketing expert Neil Patel breaks down the numbers behind small business blogging, and what it could do for you.

Switch to a line of credit

If minimum payments on credit card interest have become a regular monthly expense, you may be better off using a line of credit.

A line of credit will typically have a much lower interest rate than a credit card. Once the bank approves you for a line of credit, you can use it to pay off your credit card. With lower monthly minimums to pay, you have more cash flow freed up. You can even use some of that extra cash to pay down the principal.

Further reading: How to Finance Your Small Business

Find alternative funding

If you’re at a point in your business’s lifecycle where you need more cash in order to keep growing, consider alternatives to standard business bank loans or lines of credit.

Peer-to-peer (P2P) lending services act as a middleman between small businesses and people that want to lend to them. They may offer better rates or payment terms than your local bank. And it’s easy to check them out. LendingClub offers quotes for small businesses with a processing time of “minutes.”

Another option is approaching friends and family. Some entrepreneurs shy away from this— they worry involving friends and family in their business funding could get “messy.”

There are right and wrong ways to do this. Check out this handy Forbes article for guidance from a successful CEO who has used funding from friends and family to operate his business.

Negotiate with vendors

If you have an established relationship with a vendor, you may be hesitant to approach them looking for a better deal.

It’s best to view your relationship with your vendor as a collaboration, rather than a competition. After all, if they can keep you happy—and keep you as a customer—it benefits them in the long run.

When you negotiate with your vendor, you should have the following on hand:

  1. Numbers from the competition. What are other vendors charging for the same goods or services?

  2. Notes about the history of your business, and your plans for future expansion. Your vendor will want to know you have the potential to eventually offer them more business.

  3. Goals. How much would you like to reduce your costs? What kind of price would you be willing to compromise on with your vendor?

  4. An honest attitude. Bluffing, bending the truth, or outright lying have no place in good faith business negotiations. Be prepared to be transparent about your motives and goals. That way, your vendor will feel comfortable doing the same.

Finally, ask about incentives. There could be deals—bulk buying, or lower prices during your industry’s slow season—that you’re not aware of.

Automate and outsource your admin

Bad news: traditional admin can be expensive. Good news: you can automate a lot of it.

You could save money by switching from a traditional payroll provider to Gusto; they provide HR and payroll services remotely.

Instead of hiring a traditional law firm, you could get a subscription to Rocket Lawyer.

And for bookkeeping, we naturally recommend Bench.

To really sink your teeth into business automation, check out our guide on How to Automate Your Small Business.

Big changes

Make your employees happy

Star employees are worth their weight in gold. But if you find yourself always backfilling positions, you have an expensive problem on your hands.

According to PeopleSeek, the process of replacing a mid-range manager with a new employee costs about 20% of their salary.

If you notice certain positions frequently churn—that is, the people filling them quit their jobs—it may be time to look at why. Is the compensation you’re offering competitive? Could work conditions be improved? What types of perks would it take to keep employees working for you?

Sitting down regularly with employees for reviews can help you learn what’s making them happy, and what isn’t. For small businesses on the larger size—where you don’t have time to meet with each of your employees on a regular basis—services like TinyPulse help you keep an eye on company culture.

Switch from employees to contractors

On the flip side, depending on your business, you may be better off switching from regular employees to contractors.

This is especially true of seasonal businesses, which face profit peaks and valleys over the course of the year. Check out our article about cash flow for seasonal businesses to learn about when it makes sense to bring contractors onboard.

Downsize your office

Small offices are in.

According to the CCIM Institute, offices are 20% smaller now than they were in 2000.

That’s because new tools make larger offices—and higher rents—unnecessary. Thanks to tools like Slack, Skype, and Google Hangouts, it’s no longer necessary to keep 100% of your employees in the office five days a week.

The “flex” model is growing in popularity, especially in tech. Netflix’s CEO doesn’t even have his own office.

To reduce your physical footprint and make remote work part of your company culture, you’ll need to do some planning. Many employees consider it a perk to work from home. But not all of them can.

First, take a look at your employees’ duties. A receptionist probably can’t do their job remotely. A programmer or graphic designer can.

Then, figure out the minimum amount of seating, meeting rooms, and other amenities you’ll need. A smaller office space, with employees working remotely, demands flexibility.

Not every employee will have their own, permanent desk or workspace. And you may have to set a limit on how long large meetings last. Check out Fundera’s helpful guide on downsizing your office space and helping your employees work remotely.

Team up with other businesses

“Buying groups” and trade associations can help you team up with other businesses for the sake of saving money.

By joining a buying group, you can work with other businesses to negotiate lower prices for materials. This is especially helpful if your business needs to purchase large amounts of certain types of goods. Examples include janitorial, safety, or industrial supplies, or packaging.

A local trade association won’t help you negotiate with vendors for cheaper prices. But many of them offer member-to-member discounts, so joining once can help you find better deals locally.

Before joining a buying group or trade association, do the math, and make sure the savings you’ll earn are worth the cost of membership.

Cut out customers who aren’t worth it

Here’s an unpopular truth: some customers aren’t worth your time.

When entrepreneurs are just starting out, it’s common for them to offer new clients steep discounts. Even if margins are thin, it’s a way to get customers on the books, and keep cash coming into the company.

But as time goes on, and new clients start signing on, it become less and less necessary to offer these kinds of concessions. Many businesses eventually end up with a roster of clients paying regular, non-discounted fees—with a few holdouts from the old days who are still paying lowball rates. And those old clients are costing the business money.

There are other customers who can put your company at a disadvantage. For instance, ones who are always late paying their invoices, and disrupt your cash flow. Or picky, impossible-to-please customers who eat up your employees’ time, while making relatively small purchases.

In any of these cases, where customers cost your more time or money than they’re worth, you can actually save cash by losing them.

Hootsuite founder Ryan Holmes has written a great article for Fast Company about how to tell when a customer isn’t worth your time—and how to get rid of them.

Looking for more ways to save your business money? There may be tax deductions you’re not taking advantage of. Check out The Big List of Small Business Tax Deductions.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.

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