Cutting Costs 101 – How To Save Money When Running A Business

Cutting Costs 101 – How To Save Money When Running A Business

It doesn’t matter if you are a small business or a large corporation. There will be a time when you can learn how to save money. This topic is particularly relevant today, when the world seems to be in recession.

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Learning how to save money and efficiently lead a business without wasting resources is a valuable skill. Planning is essential, but you can’t always foresee the consequences of things like wars and pandemics.

So, how can a business become more resilient in times of trouble? There are ways to adapt to a crisis before it happens.

Audit and build a forecast

Based on recent Zippia research, 22% of business startups fail in their first year. Cash flow problems are the main reason small businesses fail. Your business’ success is dependent on your financial planning and budgeting.

Analyzing your current efficiency is the first step of every good business plan. We’ll begin by auditing all front-end and back-end operations, workflows and processes.

Your goal at this stage is to simply gather data, and learn to manage your cash flow and expenses. You must determine the ROI and value of each activity. You should also analyze your cash flow to determine if it is possible to manage your payments or if there are any changes that you need to make. These details will help you identify the inefficiencies and gaps.

For instance, make a list of your current fixed and variable expenses. Next, identify areas where you can optimize and cut costs.

Once you’ve analyzed your current business operations, it’s time to visualize and plan what you want to achieve. This is where you can take action. Set a goal or budget and stick to it.

Use technology to automate processes

Open-source, AI, and cloud technology can be of immense help when trying to cut costs. You can automate and streamline many operations with free or inexpensive tools.

For instance, if you have remote or shift workers, you can try using staff scheduling software to make the entire process more efficient and reduce human errors like overlaps or missed shifts.

Likewise, try to go paperless and start doing business in the cloud. It will allow you to access different files and documents for different job roles from one central location.

Think of how much you’ll save on storage costs alone by going paperless!

Additionally, automating manual, daily, labor-intensive operations saves time. Time is money! Data entry is a time-consuming task that you can automate.

In some cases, businesses might be forced to lay off employees due to a tight budget. Automation can be used to replace human labor in these situations. Laying off employees is the same as losing human capital. Learn to use technology as an alternative if necessary.

With all this said, we have to mention that automation is not always the cheapest option. Automating a factory’s entire assembly line requires a significant upfront investment. To make sure you have accurate financial projections, shop around for possible solutions.

Finally, on the subject of cutting costs, we can’t forget about virtual technology which allowed many companies to operate remotely, especially during the pandemic outbreak. Zoom is a great technology to save money on travel and allow you to meet in person. You can also collaborate with Google Drive and Google Meet, and sublet your office space. Take advantage of technology and get creative!

Fix your supply chain and ask for discounts

Leading a successful business means constantly observing the market. You want your business to be profitable so you must source the highest quality product at the lowest price. If there are better suppliers on the market, don’t be afraid to change suppliers.

If the product price goes down and you can find suppliers that offer a better price vs. value ratio, ask your supplier to match the price. If your supplier is unwilling to match the price, you can give another supplier a chance.

Carefully read and compare supplier contracts. You may be eligible for discounts in many cases, especially if your purchase is large. Do not be afraid to exercise your rights and negotiate prices.

In the end, getting a better price from your supplier means cutting costs and improving the overall profitability of your business.

However, it’s not just about discounts. You must fix your supply chain if you want to reduce costs. This includes third-party services such as fulfillment centers, distribution centres, freight forwarding partners, and other related entities. You will need to think outside the box and find ways to improve efficiency throughout the chain.

Outsource to reduce overhead costs

When running a business, a lot of funds go toward payroll. Additionally, as an employer, you probably offer a 401K or a similar retirement plan. These plans can be expensive to set up and administer. It’s worth looking around for a provider that charges lower fees.

Another way you can bring down your 401K costs is to cut administrative costs by having a safe harbor 401K which exempts your plan from compliance testing.

If your budget is really tight, you could reduce the number of employees on your payroll. Instead, you can outsource to freelancers and third-party agencies. Outsourcing has become popular among big and small businesses with global market size of $92.5B in 2019.

For instance, if you’re a company unrelated to IT and just need a website, you don’t necessarily need a full-time developer on your payroll. Instead, hire a freelancer to design and maintain your website or an agency to do so.

Aside from saving you from high payroll expenses, outsourcing parts of your business instead of doing them in-house will decrease your need for office space and rental fees.

Based on 2022 Zippia statistics:

  • 37% of small businesses outsource either accounting or IT services;
  • 34% outsource digital marketing;
  • 28% outsource development work;
  • 24% outsource human resources or customer support work;

If you’ve decided to decrease the number of fixed employees on your payroll, these are some areas you can consider outsourcing. You have two options when it comes to choosing an external partner: you can either hire an agency or individual freelancers. Do your research to determine the most cost-effective outsourcing strategy.

Explore alternative marketing strategies

If your budget doesn’t allow paid ads, think of out-of-the-box and low-cost ways to achieve a great impact and exposure. Growth hacking, influencer marketing, and guerilla marketing are all options.

Another great way to save on marketing costs with the long-term picture in mind is to invest in things like content marketing, SEO, email marketing, and community building early on.

These are seemingly ungrateful efforts at first since they don’t produce immediate results. These will help you get tons of organic traffic and reduce your spending on paid ads.

In the past, traditional marketing strategies like billboards or TV ads didn’t give you a way to capture data and metrics. Digital marketing is more efficient in terms ROI because of data and the possibility to learn and make informed decisions. You can now spend strategically instead of blindly spending.

Lastly, don’t forget that today it’s all about social proof and native ads that don’t really feel like ads. According to a recent BrightLocal survey:

“77% of consumers ‘always’ or ‘regularly’ read online reviews when browsing for local businesses (up from 60% in 2020)”.

We recommend you find a way to provide an incentive for your buyers to leave reviews. You can offer a discount, freebies, store credit, or any other incentive that suits your business model.

Downgrade subscriptions

The next things we want you to analyze are your subscriptions and the services you’re using. To stop overpaying for services, you need to regularly audit the service and value you’re getting and compare it to other services on the market. Do not be afraid to ask for a lower rate or to compare your current service provider’s offer.

Do you need such a high company cell phone limit? Are you actually using your landline? Is your bank offering the best deal?

After analyzing all the services you pay for, you’ll cancel some right away and realize you can significantly downgrade others.

Another option is to save by getting annual instead of monthly contracts. Annual licenses are often discounted in subscriptions. This will save you money over the long-term if you can afford a slightly higher upfront cost.

Perfect your stock levels

According to a Statista global out-of-stock product breakdown grocery products, and perishables record the highest out-of-stock value, with 45.5% and 38.9%, respectively. These two product categories are followed closely by beauty and health care.

Furthermore, 2021 Adobe research shows that when compared to a pre-pandemic period (January 2020), out-of-stock messages have increased a whopping 250 percent during the pandemic (in October 2021).

These stats clearly show the losses your business incurs from improper inventory management. No one wants to deal with backorders, out-of-stock situations, or the reverse, a warehouse full if dead stock and no buyers. Better inventory management means better finances, so optimizing your stock levels is what you’re going to aim for at this stage.

Recent estimates show that retailers were working with around 70% inventory accuracy in 2020. There is always room for improvement. You can get a good idea about your sales projections by looking at historical sales data and analysing the trend, current demand, and product lifecycle. These numbers should be taken into account when deciding the size of your order.

If you can become more agile and use third-party fulfillment or distribution centers, or even adopt drop shipping as a low-risk business model, you can significantly decrease your storage costs.

Hire a tax consultant

Last but not least, we recommend working with a tax specialist or a tax accountant who is well-versed in laws and regulations and can help you file taxes correctly and get a favorable tax return.

Small businesses often overlook the importance of a professional guiding them through this area thinking they will save costs. This can lead to them not being able to claim all the tax they could have or filing incorrectly.

However, note that your tax consultant or accountant will also charge you billable hours. This is another expense you should track. In order to maximize their savings and provide value, they should be paid the same amount as their fees.

Ideally, a good tax accountant should bring you many benefits in terms of cost savings:

  • Saves you time and lets you focus on more important business aspects.
  • Helps you avoid costly mistakes and navigate the complex tax process.
  • Helps with tax preparation and filing.
  • They can spot tax-deductible expenses you might miss otherwise.
  • They keep you updated and compliant with tax laws and regulations.
  • Can provide general financial expertise and advice.

Wrapping up

Proper financial management is crucial for the overall success of your business. Be mindful that your expenses should not be at the expense of your product or service quality.

Saving money and cutting costs in the business climate today requires companies to go through digital transformation and implement technology to find faster, better, and more efficient ways to reach their audience while remaining profitable.

We urge you to use this technology at your disposal to track your expenses on an ongoing basis. This is the only way to avoid unnecessary expenses and reduce costs when your budget is tighter. We hope you find this article helpful.

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