Personal finance gurus always tell people that expenses that appear to be “fixed” – like cable and cappuccino—really aren’t. While a lot of us would debate that, the underlying principle is sound and applies to small businesses, as well.
The truth is that those costs you have always thought of as “fixed” may not be. And if they’re not, it means there could be opportunities for reducing, renegotiating and even eliminating them, which in turn could translate into big savings. Although we tend to associate cutting expenses with tough times or the cyclical ups and downs of business, the reality is that small business owners should always be looking at expenses and reducing them where they can.
If you do find your business slowing, Bankrate.com cautions against cutting expenses in a panic and says that it can actually cost you money if you cut the wrong things. Here are five areas not to cut:
- Advertising.
- Training
- Salaries and benefits
- Safety measures
- Anything that affects your quality
There are also some areas where reducing expenses is not only possible but likely:
- Negotiating with data service and telecommunications
- Not having smartphones or BlackBerries for everyone
- Downsizing computers to less expensive netbooks
- Implementing performance-based partnerships and incentives
- Tracking expenses
But, what about the impact on your business? Consultant Mike Michalowicz says there are things you can do to cut costs in your business without hurting it and offers some terrific places to start:
- Change the emotional game. Can you get excited about saving money and get a sense of accomplishment from doing more with less? You definitely need adopt this mindset.
- Control cost creep. Michalowicz says that at least some of today’s costs may have begun as relevant expenses but no longer are. Example: Fees or subscriptions. Go back a couple of years, evaluate each one and cut those you no longer need.
- Break vendor dependency. Costs creep here, too, and if you’re working with a single vendor who raises prices, you’re stuck. Michalowicz suggests trying out “second” vendors until you find the right levels of comfort and cost, then make them your primary vendor.
- Stop saving one by jeopardizing all. This has to do with biting the bullet to let a problem employee go in order to save /boost your overall staff /operation.
- Annualize small, recurring costs. We tend to think of expenses in monthly chunks (the way we pay them). Michalowicz recommends using the annual amounts as the basis for eliminating or renegotiating these costs, such as Internet, phone and rent.
- Compare apples to oranges. Don’t compare “either/or” costs in narrow categories. Instead, look across the wider spectrum of your different costs when you’re looking for expenses to cut.
Finally, microsoft.com offers some additional insights in How to Cut Costs Painlessly in Your Small Business and suggests six areas to look at, including:
- Managing your transportation costs
- Cross-training employees
- Comparing service offerings
- Monitoring receivables
- Marketing efficiently
- Checking every angle
All of these are solid, common-sense approaches to trimming your costs that will help your bottom line.
Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net