Top 10 ways to cut the costs of running a small business
Reducing costs in your business will always be ideal. After all, you need as much capital as you can to grow your business. However, you also need capital to stop your business from going under. According to Embroker, 29% of startups fail because they ran out of money. These tips and tricks are handy in making sure your business maximises its profit and minimises its expenses.
1. Use Technology
Technology has given you new ways to advance your business that weren’t around 10 years ago. One of these advances is the ability to reduce business costs through virtual communication. Virtual meetings help minimise travel expenses and can reduce office space. It is still necessary to recognise the importance of personal contact though and therefore you should weigh up the various risk factors when resorting to virtual communication only.
Ditch traditional landline setups. Traditional telephone lines can often be expensive and small business owners using cell phones, voice over IP and virtual phone lines can easily reduce their business costs this way.
Using software such as Microsoft Word or Google Docs reduces the costs of paper (more on this later).
Social media gives you the ability to develop a much larger customer base than previously possible and this can be done for free (more on this later too).
2. Lower financial costs
Compare insurance providers for the cheapest rate; then ask your current provider whether they can match that rate.
Evaluate insurance policies to make sure you are not over-insured or duplicating coverage.
When considering business expansion, do cost benefit analyses and create models predicting your future profit. These will help you stop getting into unnecessary debt. Debt, which if allowed to accumulate, can affect company ratings, interest rates and the ability to borrow in the future.
3. Go Paperless
The advances in technology have given many businesses the ability to completely reduce their reliance on paper, ink and mailing supplies. Paper supplies are expensive and what’s more, you will be reducing your carbon footprint when you go paperless. “Going green” can not only be a morally backed decision, but also a financial one. As a small business, you are more likely to get crowdfunded and given grants if you are a greener business.
4. Modernise your marketing techniques
Use of Social Media can be a far more effective marketing strategy than a direct mail campaign, for example, but it is also far cheaper. It is far more effective because it combines both networking and advertising. A proportion of the people you advertise to on social media will be your followers and therefore contacts. This customer base is far more likely to use your product.
An example of effective social media advertising is the UK company Gymshark which revolutionised the use of the instagram influencer as a cheap advertising source. According to Social Republic, Gymshark helped begin the trend “look good while working out” which skyrocketed: there were 100 million posts using the hashtag ‘fitness’ on Instagram. This highlights the power of social media as a marketing tool.
Similarly bidding for keywords on Adwords and refining your businesses SEO strategy are very effective ways to market your business without paying for the costs of physical items.
Build your customer email list and implement a referral strategy. Current customer reviews and recommendations are far more likely to result in a sale.
5. Reduce supply expenses
Office supplies can be expensive. Look outside of traditional vendors to larger discount suppliers such as Amazon. Although you will want to be negotiating with a vendor for large quantities of paper. Searching for a supplier is crucial. A good place to look for a supplier is your competition. They will be producing similar products to you; therefore see whether their supplier can offer a better deal than your current one.
6. Cut production costs
Selling leftover office material rather than sending it to a recycling center can save you money over time. Also, consider ways of using your waste to create another product. If possible, the second option is ideal as it will make your company more environmentally friendly. You will be recycling the left over materials and, as highlighted before, giving others a moral incentive to help your business grow.
Make sure you are getting the most out of your production real estate. Consolidate the space necessary for your business to function. This may include using space for dual purposes such as a storage room that holds printers and photocopiers for example.
With this refinement of space, you’ll be able to lease unused space to another business or individual. Office space can vary in the UK from costing £150-1500 per person per month. This is very costly for a small business, and anything you can do to reduce these costs, or even profit off office space, is very helpful in reducing business expenses.
Track and measure the operational efficiency of your business, in order to adjust and optimise the use of available resources. Use key performance indicators (KPIs) to help you assess where you can optimise your use of resources for the most effective price cuts.
7. Employee Time Management
Optimising the productivity of your employees is a great way to save money. Increasing employee work efficiency, through time management, will increase the amount of work done per billable hour.
Apps like Focus Booster and Rescue Time help employees focus on the tasks you’ve set them.
Software such as Paymo and Toggl for example, help track employees time usage, time spent on different tasks and, therefore, their billable hours.
Give your employees reasonable time limits to complete certain tasks and offer incentives for exceeding your expectations.
Maintain a rigid employee schedule. For example, set a predetermined time for meetings, making it clear that you expect them to stick closely to the appointed time. This will make the working environment far more focused and, as a result, more productive. This will save you money.
8. Maximise your employees’ skills
Divvy out tasks to your employees depending on their skill in that specific area. For example, don’t use expert sales people for word processing. Similarly, there are many menial tasks within a small business; these shouldn’t be overlooked. For example, if it is a simple numerical task, send it to the employee who is good with numbers rather than distributing the tasks randomly.
Another way to maximise your employee’s skills is to narrow the business’ focus. By limiting the type of product/service your business offers, you will allow your team to be more productive and produce higher quality products or give a better service. This will prevent your business from being spread too thinly and will save you money in the long run.
However, rejecting offers to branch out into other products and services won’t always save you money, it can stop you gaining it. A solution to this problem is to subcontract. When subcontracting, you will retain the productivity of your team by keeping it focused while allowing a third party to branch into a new project. More projects give more revenue, while subcontracting is a cheap expense.
9. Cut out unnecessary software expenses
Although technology is predominantly a force for good when running your small business, often your business can get oversaturated with paid-for software you don’t use. There are probably a few applications you are running on your computer right now that you rarely use – get rid of these. They eat away at business expenses.
Often there is one software package that serves the same function as many applications. Through doing a bit of research, see where you can cut out the expenses for multiple applications and replace them with a single package.
Similarly, an easy way to cut expenses is using open source software. There are many open source replica softwares to branded softwares which function just as well without any of the costs.
10. Cut out unnecessary equipment expenses
When running a small business, ask yourself, do I need the newest equipment? Often, as a business owner, you can make do with second hand equipment or even equipment from cheaper brands. This is a very effective way to reduce your business expenses.
For example, do your employees need the newest MacBook Pro, or will they be able to work on far cheaper equipment with the same processing power. Similarly, heavy machinery can often be rented or bought at a much cheaper price when second hand.
Renting equipment, although more expensive long term, can often be more profitable long term. Weighing up the initial cost of buying equipment to the equipment’s function in producing a profit will allow you to determine whether you should rent or buy. It will also prevent the business bankrupting itself in the short term.
MachFast’s extra tip
At MachFast, we like to emphasise the importance of business planning throughout the stages of a business’ life as it puts you one step ahead of your competition. The tricks above will help you reduce business costs, but planning through these tips will really give you the competitive edge.
For example, points number 9 and 10, when given proper planning and research will be able to drastically reduce your business expenses due to the cumulative effect of saving money on every individual piece of software and equipment.
Was this helpful? Are you looking for more business advice? If so, check out our other blogs designed to help small business owners and creators like you.