Running a business is no easy feat. From hiring employees and streamlining marketing efforts to keeping track of finances, business owners have a lot on their plate. Compared to large enterprises, small businesses have less wiggle room when it comes to their cash reserves, meaning they have to be on top of their finances at all times.
Unexpected expenses and unforeseen circumstances, like world events, a leak in their storefront, or employee theft can leave small business owners financially vulnerable or worse — in the red. One tactic that small business owners can adopt is reducing unnecessary costs so that they are more financially secure even if these unpredictable incidents occur.
In this post, we look at six ways you can easily reduce your small business costs, providing you with solutions to have in place so your business can flourish even during the most difficult of times.
Review your financial performance
As a business owner, it’s difficult to know the financial status of your company without conducting a thorough review of how it’s performing overall. How your business is performing is the top priority and in order to be at the top, you need to set targets and understand the bottom line.
An accountant can help you with this process by comparing your figures to similar businesses within your industry and reviewing your ratios.
Everything from productivity and sales margins to investments and corporate tax will be considered in your financial review. This will give you an in-depth understanding of the financial state of your business, allowing you to increase profitability and reduce tax, so your business can thrive. Not only that, but accountants can also monitor your business’ progress, ensuring you remain on track.
Once you understand the current state of your business’ finances, you can start to properly forecast expenses (e.g. developing a growth strategy for your business to pursue a new market in the next year).
Automate Accounting and Invoicing
Another way to review your finances is to invest in software. Your software can generate a cash flow statement so you can easily see how much funds are moving in and out of your business, at any point in time. Cash flow statements are advantageous because you can identify any cash-flow problems (alerting you to any red flags like employee theft or outstanding client payments) and use that information to create a cash budget.
Accounting software has the ability to automatically list transactions if it’s connected to your business bank account. Another bonus to using accounting software is that most are cloud-based, allowing you to work from anywhere. Iincluding your home or nearby co-working spaces — saving you money on fuel costs and not having to invest in a physical space to run your office out of.
Accounting software will also automatically file VAT returns, keeping you compliant with the Making Tax Digital (MTD) initiative. If you don’t file these returns on time, you could be charged with a penalty.
Invoicing software will also automate many tedious tasks, such as sending recurring invoices and overdue notifications to help you chase down late payments. Invoicing software also has the ability to accept online payments (which is essential for an ecommerce company). Some even have the ability to turn quotes into invoices with just a few clicks. The point is, automation not only saves you time, it also saves you money.
Manage Variable Expenses
After conducting a cash flow analysis (or enlisting the help of an accountant to review your business’ financial performance), you may find that you have a negative cash flow (your outgoings are more than your incomings) and need to cut back on business expenses.
One way to do this is to make a list of all of your variable expenses. Variable expenses are dependent upon a business’ production or sales volume; when production increases they rise and fall as production decreases. Variable costs include raw materials and packaging, credit card transaction fees, printing costs, and shipping expenses. When it comes to printing costs, you can simply introduce a paper-free enterprise (which will also reduce waste).
The cost of shipping can quickly add up. That’s why understanding shipping basics can save you money by helping you develop cost-effective shipping strategies. Using an online shipping calculator is a good place to start and can help you find the cheapest shipping method.
If you’re frequently shipping items, you can also inquire about discounts (or an exclusive rate) with shipping companies. You can see which one has the cheapest flat shipping rates, international shipping, best delivery services, and overall convenient shipping times.
Investigate Your Fixed Costs
After reviewing one part of your business expenses — variable costs — you’ll want to make a list of all your fixed costs. Examples of fixed costs include rent, employee salaries, insurance policies, and office supplies. While fixed and operating costs may be more difficult to reduce or cut, it’s not impossible.
If you’re just starting out, here is what you can expect.
Nowadays, people are shopping online more than ever before, so perhaps it’s time to think about going fully digital and eliminating property tax, rent, and even fuel costs in the process.
If you still need a place to work, you can try out co-working spaces, which are a cheaper alternative to having a permanent office. You can also hire part-time employees instead of full-time employees for certain tasks, which would reduce costs pertaining to salaries, benefits, and pension plans.
Even looking at the subscriptions you have (e.g. payroll, invoicing, productivity software, and web hosting) and noting what each monthly subscription fee is being charged can be a way to reduce costs.
You can shop around for a cheaper service or cut it altogether if you’re not getting as much use out of it as you originally thought you would.
Embrace Digital Marketing
Part of any business’ growth strategy should include marketing, whether it’s to attract more visitors to a storefront or drive more online sales.
Nowadays, there’s a plethora of free online marketing tips, such as Search Engine Optimization (SEO) best practices, how to create effective marketing content and campaigns, and which social and marketing channel to use that will have the biggest impact on your business and increase sales.
This is a great digital skill that business owners can learn themselves, instead of hiring an individual or marketing agency, to save costs. To help with their marketing efforts, there are also many free online tools for marketing content (e.g. designing an ebook), or scheduling social posts on a preferred marketing channel (e.g. LinkedIn).
While some marketing strategies and tools may not be free, they can still be useful to implement. And again, cheaper than outsourcing to an agency. For instance, paying for targeted ads which will bring the right audience to your website. Or a full marketing platform that can construct automated emails, view analytics and integrate marketing and sales.
Embracing marketing and learning digital skills will help small businesses stay ahead of the competition.
Focus On Your Core Offering
While it’s great to diversify and have multiple revenue streams, for a business that’s just starting out, it might not be the best idea. Even for a more established business, a way to cut costs can be to evaluate which products are top performers and which ones aren’t. The products that are under-performing should be cut (or at least put on hold until they can be improved or marketing efforts to attract new customers can be increased).
Streamlining what you offer will help you feel more focused (instead of scattered on multiple offerings) and cut production costs (e.g. raw materials, manufacturing). By focusing on your core product, you’re also prioritizing customer loyalty and increasing customer acquisition (better to have a single fantastic product rather than multiple mediocre ones).
When you focus on offering your customers the best and providing them with value, you’re also elevating the customer experience and they will come back to you time and time again.
Business owners not only need to be prepared for worst-case scenarios, but they need to be on top of their finances at all times. If they are experiencing a negative cash flow, an easy way to get back on track is to cut extra costs.
Before cutting costs, though, business owners need to know where their business stands by tracking their financial performance (which can be daily, monthly, quarterly). This is crucial to understand the current standing of the enterprise along with planning its future growth.
Automating accounting and invoicing will save business owners time and money. Looking at both variable and fixed costs they can then cut any unnecessary expenses (e.g. eliminating printing costs, knowing shipping basics, e-commerce shipping costs, and having affordable shipping methods).
Taking on a new skill and deep diving into marketing (e.g. text message marketing service, content marketing, SEO best practices) will be helpful for businesses in the long run and save them a ton of money compared to outsourcing this service. Finally, honing in on their core offering will help small business owners feel more focused and confident about their service or product.
If you need advice on how cloud accounting can help your business and its future growth by creating cash flow statements and giving you an overview of your business finances, you can request a free consultation right here from one of our Chartered Accountants. Reducing costs will help keep your business finances on track and help you worry a little less about unforeseen circumstances.