Senior business owner working on financial documents

4 Ways to Cut Your Business Costs During Economic Hardship

4 min read • May 07, 2020 • Derek Miller

Due to the coronavirus pandemic, many businesses have altered their operations drastically. Not only are they dealing with production hardships of stay-at-home orders, but they’re watching sales decline as consumers are purchasing less. Even the most resilient businesses are facing unprecedented challenges.

While securing a small business loan or taking advantage of government grants should be on your radar, there are other ways for business owners to lessen the financial effects of COVID-19. Consider these 4 options to cut internal costs and keep the doors open for your business through and beyond the coronavirus pandemic.

1. Focus on Your Top Products

The 80-20 rule of business states that 80% of your business comes from 20% of your customers or products. When you’re looking for ways to cut costs, start by limiting your options to your best-selling products. This step will help you cut the expenses coming from under-performing goods without hurting your revenue severely.

For example, an Italian restaurant might determine that most of their revenue comes from pasta dishes and not salads or desserts. This restaurant owner should then modify their menu to only offer pasta during the coronavirus. Only selling pasta would cut prep-time and inventory expenses (of perishable ingredients nonetheless) while still offering their best-selling dishes.

Additionally, you may be able to keep some items that have an exceptionally high gross margin. These items have relatively low costs and offer high returns to your business. Selling a few high-margin goods can be as profitable as selling more of your lower-margin better-selling products.

To help you weather the coronavirus, look at your inventory and limit your options to refocus on your best-selling—or most profitable—items. By taking this initial step, you can avoid unnecessary expenses with minimal effect on your bottom line.

2. Cancel Tools and Services You Don’t Need

Individuals and businesses both have expenses they don’t need—like that gym membership you rarely use. While analyzing your recurring business expenses is a good practice year-round, it’s even more important now as you try to optimize profitability.

Look at the expense report for the last 12 months and see where cash is going out of your business. You’re likely paying for software or services that are not necessary right now. If you have subscriptions or recurring expenses for tools that you’re not—or only moderately—using because of COVID-19, consider canceling or pausing them.

Even if you do use a tool or service, you may be able to negotiate to delay or reduce fees during the coronavirus. Consider contacting customer service to see what payment options are available during the pandemic. These service and software companies have an incentive to keep you in business because of your lifetime value, so you’re likely to find some relief.

Use this time to review all your expenses, whether they are monthly subscription fees or annual dues. Discuss internally whether you want to continue paying for them and investigate alternatives. These small cuts and changes can compound and have a significant effect on your bottom line.

3. Look to Cut Management’s Salary Before Deciding on Layoffs

The COVID-19 pandemic will pass, but people will remember how your company handled it. Some businesses immediately fired or furloughed employees, leaving them with nothing. Meanwhile, other leaders are stepping up and setting an example. 

The CEO of Columbia Sportswear announced that he will only take an annual salary of $10,000 this year so his income can be used to keep employees on the payroll even with the stores currently closed. Several other executives have agreed to a 15% pay cut to help lower-level staff members. 

Your employees will remember when you sacrifice for them and the lengths you took to keep them employed. If you do need to reduce their hours or their pay, they will be more willing to accept those terms if they know you have already done everything you can to protect them first. 

4. Consider Moving Your Business or Going Remote

Rent is a considerable expense for most companies. If you are looking to cut costs right now and save money in the long run, consider moving your business, negotiating your rent, or becoming a remote company. 

For example, a few years ago, Citigroup employees in New York City embraced hot-desking. Instead of each employee having an office, team members would come in and grab a desk when they needed it or would otherwise work from home or on the road. This move allowed Citigroup to save $10 million annually because it didn’t need that large of an office space.

You can still stay operational if you look to reduce or remove one of your largest fixed monthly expenses. With the pandemic shedding light on remote work, now might be the perfect time to test the long-term viability of virtual or flexible offices for your business.

Even after the worst of the COVID-19 pandemic passes, your business may experience a few months of slow business as consumers return to their communities and try to rebuild economically. In addition to small business financing options and government grants, you should look internally for ways to stretch your profitability. The 4 cost-cutting options above are a great place to start as your business looks to grow its bottom line during and after this economic hardship.

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Derek Miller

Derek Miller is the CMO of Smack Apparel, the content guru at Great.com, the co-founder of Lofty Llama, and a marketing consultant for small businesses. He specializes in entrepreneurship, small business, and digital marketing, and his work has been featured in sites like Entrepreneur, GoDaddy, Score.org, and StartupCamp.