A Systematic Approach to Cost Reduction for Small Business Owners


A penny saved is a penny earned. This age-old saying is relevant to small business owners now more than ever. The great recession of 2008 has squeezed consumers and businesses alike and continues to do so. They are reluctant to spend their hard-earned money on anything but basic necessity. This has made direct impact on the revenue, particularly for small businesses.
Given that there is less money coming in, the obvious step small business owners need to take is to watch the money outlay. Only those who can reduce their expenses to a sustainable level will be able to survive the ongoing economic challenges.
Now, it may be tempting to take a machete and start cutting your expenses; however instead of going about this willy-nilly you should try to use surgical knife and make systematic cuts that will keep your foundation intact and help you take advantage of the upturn when it happens. We have come up with a systematic approach to looking at your expenses that will help you find “low hanging fruits” for expense reduction without impacting your operations and customer service. You should study and deploy these steps in the order described to minimize the damage, while still achieving your expense reduction targets.

  1. Eliminate
    Look at your expense categories and eliminate any expenses that can be considered discretionary right now. It helps to go through each category and ask yourself a question – do I really need this or can I live without it for now? If you have regularly scheduled service, how about reducing the frequency to save money? Also, look for the opportunity to replace paid services with free ones. Are you spending too much on business phone? How about using Skype instead? There are number of free offers out there for variety of services.
  2. Rent
    Why own something, when you can rent it from someone else? Renting an equipment or real estate not only reduces the need to cough up money upfront, but also reduces the risk that comes with the ownership. Just ask any homeowner in Florida or Arizona and you will see what we mean. Rental can even apply to technology investments. Instead of buying software such as Quicken you can use the online version and pay monthly fees.
  3. Share
    If you have to own something look at the possibility of sharing it. If you know you will not be able to use the equipment or real estate all the time you can look into sharing it with someone who has similar needs and reduce your expense proportionately. Sharing not only reduces your upfront investment; it can help with maintenance cost as well.
  4. Optimize
    Finally, if you must buy it, own it and cannot share with anyone you should try to get the maximum value out of it. Before making purchasing decision look at your needs and try to find minimum configuration that meets your needs. Do you really need 3,000 sq feet building when you only 2 employees occupying the space?

We hope you can apply this approach to many of the purchasing decisions – large and small. If you have any suggestions and concrete examples we would love to hear from you in the comments.

Image Courtesy:   jollyuk

Related posts:

Comments

  1. Great tips for business owners who are facing tough times due to the current global economic climate.

Trackbacks

  1. […] A Systematic Approach to Cost Reduction for Small Business Owners […]

  2. […] Want to cut costs in your small business? Check out these suggestions for cutting costs across the board. Reducing cost is a great way to manage your company’s finances no matter how your business is doing. Cutting expenditures improves your company’s financial situation and frees up additional resources to reinvest in your business. Angel Business Advisors […]