Inflation is making it costlier to do business. Many small businesses are reluctant to raise prices or hike them high enough to maintain their profit margin. An alternative for remaining profitable is to reduce costs and be frugal. Here are 25 ways you can cut expenses without hurting your business. Some are drastic, some are modest; all need to be tempered for your situation. These are in no particular order of importance or cost savings.
25 ways to cut business expenses:
- Offer no/low cost fringe benefits to employees. In this tight labor market, you need to offer a menu of benefits to attract and retain good employees. But stress those that don’t cost big bucks. Examples: flexible work arrangements (remote work; flex time), arranging payroll deductions for employees to buy their own pet insurance or U.S. savings bonds. Also, if you offer health coverage, consider lower cost options. For example, a high-deductible health plan combined with a health savings account may be substantially less costly than a traditional group health plan. Or consider using health reimbursement arrangements which enable employees to get their own personal coverage; the employer just reimburses them up to modest limits.
- Use independent contractors. Instead of hiring employees and keeping them on the payroll, use outside freelancers for special projects and during crunch time. It costs about 30% less to use independent contractors than employees. Caution: you can’t merely label a worker as a contractor if they’re really an employee; you could face considerable labor law and tax penalties for misclassifying workers.
- Invest in AI. Find ways to use AI instead of employees or independent contractors (e.g., chatbots to handle customer service). While it will cost you up front, you’ll reduce outlays in the long run.
- Meet customers and vendors personally. Instead of traveling to see them, use Zoom or other virtual meeting portal. Bonus: this meeting method uses less time so you’ll have more of it to devote to other aspects of your business.
- Wine and dine frugally. If you must meet customers and clients for meals, consider cutting back on costs by scaling down. Go to lunch instead of dinner, or try a breakfast meeting.
- Stay compliant with federal, state, and local rules. This avoids fines, penalties, and lawsuit. Spend the money to ask questions of your attorney if you have issues; the fees are less in the long run than the cost of noncompliance.
- Adopt no/low-cost marketing strategies. These include networking, and ask customers to post reviews (assuming you’re confident they’ll be positive).
- Get referrals. Ask customers and employees to refer your business, even if you pay a small referral fee. Your social media platforms, as well as Reddit and Quora, can be used to ask for referrals.
- Leverage social media platforms. Improve your use of social media—Facebook, Instagram, Twitter, Pinterest. This may mean restricting your activities to fewer platforms, because your and your staff’s time matters a lot.
- Learn for free. Keep up with changes in your industries as well as business developments. Trade associations offer courses, articles, and other ways to learn what’s new. The SBA and SCORE routinely run online courses for free (I do one for SCORE each year on tax changes).
- Minimize use of the printer and copier. This cuts down on paper and toner usage and, of course, is better for the environment. Save files and documents to the cloud.
- Send invoices electronically. This avoids having to print them out and use a stamp to send them by snail mail. Added bonus: the invoices are received quicker and, hopefully, payment is too.
- Get a better phone system. Decide whether your business still needs a landline, especially with many or all employees working remotely. There are smartphone plans for small businesses, such as one from Verizon.
- Change your lighting. You can save 5 to 40% of energy costs by changing your office lighting. The type of lights (e.g., LEDs) and the use of timers, dimmers, and other features can produce substantial cost savings.
- Change thermostat settings. Energy.gov 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. The percentage of savings from setback is greater for buildings in milder climates than for those in more severe climates.” Using automatic thermostat settings can help with this.
- Turn off unused equipment. Many electronic items have automatic shutoffs or energy-saving features, but it’s best to instruct employees to turn things off when not in use—especially overnight, weekends, and holidays.
- Negotiate prices for goods and services you buy. You may, for example, get better prices from local vendors than from large companies. You could get discounts for paying immediately rather than typical 30-day net terms. The key is: You’ve got to ask!
- Review insurance policies. You want the right coverage but may be able to reduce costs—shop around, increase the deductible, cut unneeded coverage.
- Avoid debt. While you likely can deduct interest payments, they’re still a drain on your budget. Try to pay off existing debt, especially in light of rising interest rates.
- Find a better banking solution. Many banks nickel and dime small businesses, while others cater to them. Consider, for example, a credit union where fees may be lower than at commercial banks.
- Help employees’ efficiency. The more efficient they become, the more work gets done. This translates into cost savings. Consider offering training and incentives—small investments compared with the returns you could reap.
- Lease equipment instead of buying it. If you need a new machine, you may be able to lease it, which will cost less each month than a comparable payment on a loan for a purchase. Leasing essentially means you’re financing part of the purchase price, although you don’t own the asset.
- Consider pre-owned instead of new. If you need a vehicle or equipment, pre-owned may meet your needs. Look for refurbished equipment. Check for warranties on pre-owned items.
- Get out of your lease. If your employees are working from home post-pandemic, your need for office space may be greatly reduced. Check an earlier blog on this subject.
- Cut waste. Whether it’s paper that can be reused (e.g., shredded for packing material), office space that can be sublet, or recycling scrap metals, find ways to reduce wasting anything. Remember the old provide: “Waste not, want not.”
Amazon founder Jeff Bezos said: “Frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.”
What other ways can you come up with to cut expenses and improve your bottom line?