If you run a small business, you probably feel a pinch of rising costs. According to 2024 data from the MetLife and US Chamber of Commerce Small Business Index, 55% of small and medium-sized businesses point to inflation as their biggest challenge. Whether you’re worried about paying high wages to keep top employees or budgeting for an increased office lease, now is the time to look closely at every cost on your list and develop ideas to reduce it, or eliminate it entirely.
How to assess your business spending
All businesses are different. If you run a graphic design company with three employees working remotely, for example, it’s very different from a spice company with 25 employees and a manufacturing facility. However, no matter what your business is doing, you will want to regularly put all your expenses under the microscope to build your budget.
Classification of essential and non-essential costs
The essential costs are going to end what you have to pay, or what you are no longer in business: your employee’s salary, invoices from your suppliers (if your invoice is past due), internet invoices for your office, and monthly rent.
Look at the cash you have made from your account for the past six months and ask yourself which items are essential items. All others fall under non-essential categories. Do your employees need to travel weekly to meet clients? It may change. Do you need to plan a summer party for your team? It may help morale, but life will certainly continue without it.
Understanding essential and non-essential costs may sound easy, but it requires careful deliberation. For example, advertising the services of your business may not sound essential, but what happens if you pull the plug on every social media promotion? If you don’t have overwhelmingly loyal customers, you can also pull out a revenue plug.
Modified and variable costs
While checking each cost, please note that fixed costs remain the same each month and fluctuate.
Fixed costs can help you budget, but it’s easy to start spending on autopilots. Don’t assume you have to always pay your Wren the same large tab. For example, is there space in another part of town where you can slice the overhead 30%?
When it comes to variable costs, beware of the months that have skyrocketed. Was it worth it for four employees to pay for the flight to attend that meeting? Did double your advertising spend for a holiday push provide the returns you expected?
Cost reduction strategies for small and medium-sized enterprises
There are things that small businesses can do to save money.
Rewards employees for low costs
Instead of having the CFO handle all the cost management, it allows team members to become part of the solution. If your company is spending a significant amount of money on travel, there are travel management solutions like Navan that will reward employees who book more affordable bookings.
For example, if an employee makes a hotel room $100 less than the average price, they may offer the ability to earn points for their own personal trips.
Avoid unnecessary bank charges
Every business requires a checking account to manage cash flow, but take a closer look at the fees you pay to manage your money.
How much is the ACH fee if I need to pay a vendor or employee? With some business checking accounts, you can easily pay more than $25 a month just to pay your bill. Pay close attention to wire transfer fees as well. These can cost up to $50. No matter who is paying, try finding the most affordable routes and getting your money.
If your bank’s fee structure looks excessive, shop a new home for business.
Accept digital payment solutions
PayPal, Stripe and Square are just some of the convenient digital options to accept digital payments from customers. Saving processing time and reducing the costs of dealing with checks may allow you to spend more flexibility on your customers.
For example, PayPal offers built-in installment options that allow customers to create longer payment windows. According to PayPal, the benefits of businesses are simple. These customers are up about 30%.
Analyse your storage needs – both physical and digital
If your business is dealing with physical products, it is wise to always consider the amount of stock you need. If you’re sitting in a pile of unsold products, you’re paying a lot of money for storage space to store all those items.
When it comes to digital storage, think about how much you’re paying to hold all your files. You may be able to reduce your digital storage capacity and reduce the annual subscription costs to keep all these online folders.
Get group power
It’s not the only small business trying to shrink over your head. Are there other businesses that you might want to rent a portion of your office space? Subletting some of the space can offset some of the largest monthly expenses. Can I find a group purchasing organization to earn discounts on office supplies, food, or other expenses? By joining forces with other similar businesses, you can gain additional negotiation power with your suppliers.
Take advantage of all available tax credits
One of the best ways to reduce costs is to know how to cut taxes. All over the country, we are looking for a lot of places that are very welcoming to business. For example, in Kentucky, businesses can take advantage of $3,500 to $25,000 tax credits just to hire new employees and invest in equipment. Talk to a tax professional to learn the nuances of state and local tax laws and know if other small operational changes can be made to qualify for additional savings.
Invest in long-term customer loyalty
Previous customer surveys estimate that it costs about five times more to acquire new customers than to retain existing customers. Rather than constantly spending money to attract a larger audience, focus your efforts on giving audiences who already know your business a reason to return again and again. By reducing some of your marketing expenses and providing a top-notch customer experience, you become the biggest ambassador to spread the word about your business yourself.
Conclusion
When you are trying to turn a small business into something bigger, every dollar is counted. When you review money leaving your business bank account, it is important to ask yourself one important question: What can this cost get us in return? There are many truths to the saying “it costs money to make money,” so this is not about trying to eliminate all costs. Instead, it’s about trying to make sure that all of your spending paves the way for your company to grow.
