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Managing the expense side of your business takes a keen eye, good judgment and a balanced view. Controlling your costs is also an ongoing process, one that requires routine evaluation and decision making. It’s definitely not about cutting expenses in a reactionary way, although reducing costs is always a necessary goal.
The reality is that costs you view 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 cutting expenses tends to be associated with tough times or the cyclical ups and downs of business, small business owners should always be looking at expenses and reducing them where they can and where there is good justification for doing so.
If you find your business slowing down, Bankrate.com warns against cutting expenses in a panic. Cutting the wrong things can actually end up costing you. However tempting, don’t immediately cut these five things:
- Advertising.
- Training
- Salaries and benefits
- Safety measures
- Anything that affects your quality
But there are other areas where reducing expenses can be a safer option:
- Negotiating with data service and telecommunications
- Not having smartphones for everyone
- Downsizing computers to less expensive netbooks
- Implementing performance-based partnerships and incentives
- Tracking expenses
How to assess the business impact? Consultant Mike Michalowicz says there are things you can do to cut costs in your business without hurting it. Start with these:
- Change the emotional game. Work on adopting a mindset of being excited about saving money and getting a sense of accomplishment from doing more with less.
- Control cost creep. At least some of today’s costs may have lost their relevance over time. Fees or subscriptions are good examples. Go back a couple of years, evaluate each one and cut those no longer needed.
- Break vendor dependency. Costs can creep here, too. Don’t get stuck working with a single vendor who keeps raising prices. You can try out other, secondary vendors first, then make them primary if there’s a comfort level.
- Stop saving one by jeopardizing all. Don’t resist if you have to let a problem employee go to save /boost your overall staff /operation.
- Annualize small, recurring costs. We think of expenses in monthly chunks (the way we pay them), but looking at the annualized amounts can provide a better basis for eliminating or renegotiating them. Think Internet, phone and rent expenses.
- 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 insights in How to Cut Costs Painlessly in Your Small Business. Six productive ways to approach reducing expenses:
- Managing your transportation costs
- Cross-training employees
- Comparing service offerings
- Monitoring receivables
- Marketing efficiently
- Checking every angle
Image courtesy of David Castillo Dominici / FreeDigitalPhotos.net
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