All too often, business owners tend to look at a long list of expenses as “fixed,” with no room to maneuver. But the truth is that many of the costs we think as cast in stone really aren’t. To find potential savings, it’s a matter of taking a critical eye to every single line item on the expense side of the ledger. For many business owners, getting serious about this kind of analysis may mean enlisting the services of their accountant or another business consultant.
Either way, once you start to consider expenses with a fresh perspective, you’re likely to uncover opportunities for reducing, renegotiating or even eliminating them altogether, any of which could translate into sizeable savings. Don’t assume that now that the economy is gaining strength and your business is growing, that you don’t need to be looking for costs savings. For all small business owners, the hunt for hidden cost savings should be a regular exercise.
Some places to start your search:
- Negotiating with data service and telecom providers
- Eliminating (or not issuing) smartphones for everyone
- Downsizing PCs/laptops to less expensive netbooks (where it makes sense)
- Incorporating some performance-based incentives into your partnerships
- Closely monitoring and tracking every expense detail
While achieving new efficiencies and cost savings are always a worthwhile goal for small business owners, don’t be tempted to be “penny wise and pound foolish.” The cuts you make today could come back to haunt you in the future! In fact, Bankrate.com cautions against cutting expenses without a lot of thought and analysis: It can actually cost you money if you cut the wrong things. The site lists five areas not to cut:
- Advertising
- Training
- Salaries and benefits
- Safety measures
- Anything that affects your quality
Increasingly, experts are challenging the notion of across-the-board cutting—if you don’t really have to. On the surface, reducing expenses looks attractive. There’s an immediate benefit, because you’re freeing up funds to use for other things, and your bottom line gets a quick boost. But this can be a short-sighted strategy, with only short-term benefit. You may inadvertently be creating new problems that will be harder to address than your expenses were to manage! Employees may become overloaded; morale can fall. Pinching pennies can turn out to be one big distraction that detracts from creativity and innovation. If you’re developing or rolling out new products or services, cutting costs can affect your quality before you know it.
The bottom-line reality is that there’s wisdom behind “You have to spend money to make money.” Nobody wants to spend excessively or waste money. But at the same time, a certain amount of investment is needed to keep your business and the people in it operating as vibrant, nurtured entities!
Instead, changing some of your practices can go a long way in reducing or controlling costs without hurting your business in the process.
One example: Most businesses experience “cost creep,” or acquire expenses year after year that aren’t questioned or closely examined. You’ll uncover these—fees, subscriptions, service contracts—in your analysis of expenses and can immediately take steps to control or eliminate them.
Another: Aggregate your monthly expenses into annualized dollar amounts, which makes them look a lot different! Is there anything here to eliminate? Can any of these amounts be negotiated based on the 12-month figures? Almost anything’s possible.
Need some concrete ideas from real-life businesses? AmEx Small Business Open Forum is the place to start. The site has gathered 27 money-saving tips from successful small businesses.
Image courtesy of Stuart Miles / FreeDigitalPhotos.net
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