As a small business owner, you know the importance of balancing income and expenses to keep your business thriving. On one hand, you need to attract new clients and increase revenue consistently. On the other hand, it’s crucial to keep your costs within reasonable limits. During lean times or when you want to boost profits, you may need to quickly shift gears from earning more to pursuing aggressive cost-cutting measures. Small business loans can provide the financial flexibility you need to navigate these challenges and support your business's growth.
Key Considerations
- Cost cutting is the process of evaluating and decreasing expenses to improve a company’s profitability.
- Trimming non-essential expenses can provide quick wins, but deeper cuts require collaborations with department heads to ensure that operations aren't adversely impacted.
- While a business may be able to cut costs independently, outside experts can provide an additional layer of support and develop creative solutions that may result in even more savings.
What is Cost Cutting?
Cost cutting is the process of reducing expenses to increase a company’s profitability. Depending on the scope of your efforts and how much your business needs to cut, cost cutting may include reducing all business costs, from payroll and administrative expenses to the costs of the end-to-end production process, including design, development, packaging, and shipping.
10 Cost Cutting Measures to Implement in Your Business
Whether you run a product-based or service-based business, here are 10 steps to help you cut expenses.
1. Understand the big picture of company expenses
Taking a holistic look at your company’s expenses is a crucial first step in your cost-cutting journey. While it’s easier to keep track of where money goes in a small business, as your company grows, you can lose sight of where money is being spent and why.
A comprehensive view of expenses can help you easily segment between essential and non-essential expenses. Trimming non-essential expenses may allow you to get some quick wins. However, once you prune the low-hanging fruit, you’ll need to take a deeper look and work closely with department heads and leadership to determine which essential expenses you may be able to trim.
2. Identify areas of overlap
After mapping out your expenses, look for areas of overlap. You might find duplicate software tools or other unused subscriptions, employees with overlapping responsibilities, or multiple vendors providing the same supplies. Eliminating these redundancies can lead to straightforward cost savings that shouldn’t impact your day-to-day business operations.
3. Review financial accounts and fees
Review the financial institutions, insurance companies, and accountants you use to manage your business finances. Look for accounts that can be merged or services your business no longer needs. Consolidating bank accounts or insurance policies can quickly streamline your finances and reduce unnecessary fees.
4. Create a maximally efficient staff
Labor is often one of the highest expenses for any business. According to the U.S. Bureau of Labor Statistics, wages and benefits for a private industry worker cost employers $43.78 per hour in March 2024.* Laying off employees is one course of action many businesses take to reduce costs. However, there are also several strategies that may make your existing staff more efficient. You can:
- Schedule meetings only when necessary and ensure they have clear agendas.
- Set productivity expectations and recognize both underperforming and overperforming employees.
- Reorganize and downsize departments to minimize role overlap.
- Use technology and automation to supplement or replace some daily tasks.
5. Negotiate with suppliers
You likely have relationships with many vendors, from software providers to suppliers of physical products. These contracts can range from hundreds to thousands of dollars annually. When it’s time to renew vendor contracts, negotiate with your current vendors and explore other options, if needed, to find the best prices for comparable products.
Be sure to focus on the big-picture contracts where your successful negotiation can make a dent. Instead of saving $20 by cutting a subscription service that makes an employee’s job more effective, focus on negotiating rent for your facilities, which could save you tens of thousands per year.
6. Leverage cost-effective marketing solutions
Digital marketing has transformed how businesses approach marketing. Instead of a full-time marketing team, consider outsourcing tasks to contractors or choosing mediums that cost less than traditional marketing efforts like direct mail or billboards. Here are several ideas you can use to cut costs for marketing efforts.
- Use free social media platforms to drive potential customers to your website.
- Repurpose content across social media platforms instead of creating new concepts for each one.
- Let data drive your decisions by determining where people engage with your brand the most and create targeted campaigns for those platforms.
- Outsource the lowest-level tasks like social media marketing and data aggregation to contractors, domestic or abroad.
- Only use paid advertising solutions when you need to supplement organic efforts.
- Leverage automation tools to reduce the tasks your in-house team is responsible for managing.
7. Consolidate debt
According to the 2023 Small Business Credit Survey (SBCS), 72% of small businesses held debt, and 39% of firms reported debt of over$100,000.** The burden of interest payments alone can drive up expenses. One way to quickly cut costs and bring relief is debt consolidation. Consolidation is the process of combining one or more debts into a lower-interest loan. Not only can a business debt consolidation loan help you save money over the life of the loan, but it can also help simplify debt management by providing you with a single monthly payment(s).
8. Get smart about working capital management
Working capital management ensures a company maximizes efficiency through proper management of accounts receivable, accounts payable, inventory, and cash. Companies may be able to cut costs by renegotiating vendor contracts, effectively managing inventory, and increasing inventory turnover.
9. Consult your staff
While leadership is generally responsible for the final decision regarding expense management, employees closer to the product or service might be well-equipped to offer pragmatic ideas about cutting costs. Identify creative ways to ask employees for input via anonymous forms, one-on-one interviews, or company-wide brainstorming meetings. Then, act on the staff’s recommendations and assess them as part of your broader cost-cutting strategy.
10. Bring in outside help
Feel like your cost-cutting strategies aren't having a significant enough impact? In this case, hiring a professional who can objectively look at the company and develop creative solutions you may not have considered may be best. While it costs money to hire an outside resource, it can pay dividends if they can find the secret to cutting expenses and improving your bottom line.
Support your business with BHG's affordable commercial financing
Managing business expenses is crucial for ensuring continued success. BHG Financial can offer you affordable working capital loans up to $500,0001,2 with extended terms up to 12 years1. This combination of features allows you to maintain your day-to-day operations and take advantage of new opportunities with low monthly payments. Learn more about BHG Financial’s small business loans and view your personalized loan estimate today with our payment estimator.
How to Cut Costs in Business: FAQs
What if my business has more expenses than income?
If your business has more expenses than income, it can lead to cash flow problems and financial strain. It's important to analyze the cause of the imbalance, such as overspending or declining revenue, and take corrective actions. Consider reducing non-essential expenses, increasing sales efforts, or exploring financing options to cover short-term gaps.
Are business expenses tax deductible?
Business expenses are generally tax-deductible, which means you can subtract them from your total income to reduce your taxable profit. Common deductible expenses include rent, utilities, salaries, office supplies, and business-related travel. Ensure that all expenses are necessary and directly related to your business activities. Keeping accurate records and consulting with a tax professional can help maximize your deductions and ensure compliance with tax regulations.
