When you’re a small business owner, every dollar counts. You don’t enjoy quite the same luxury as large corporations that can spend all willy-nilly and still come out on top. You feel the direct impact of each dollar that flows in and out of your business.
Poor cash flow management is the second biggest cause of startup failure—which means if you can overcome it, you’re one step closer to building an enduring business. To develop a healthier cash flow, you have 2 levers you can pull: (1) make more money or (2) reduce your expenses. In this article, we’re going to focus on lever #2—how you can cut costs to increase your monthly cash flow. If you’re ready to start saving more money, give any (or all) of these 7 practical cost-cutting tactics a try.
1. Audit All of Your Business Expenses
Before you start trimming your business’s financial fat, you need to get a good look at where all the money is going. With free bookkeeping software like Sunrise, you can look through all of your expenses month-to-month and year-to-year to see how you’re spending your capital.
Don’t discount tiny transactions—these can add up over time to become huge expenses. Once you have the complete picture, identify what’s essential, what’s providing an ROI, and what’s extraneous. Get nitty-gritty—small cuts can add up to huge savings.
2. Take Advantage of Independent Contractors
Employees are typically every business’s highest expense. Finding, hiring, and retaining employees is expensive, and then you have payroll, bonuses, perks, and benefits to think about—it’s a lot.
One easy way to cut employee costs is by using independent contractors. You don’t have to pay freelancers an ongoing salary or provide them with perks and benefits, dramatically reducing your payroll expenses. You’ll still need a full-time staff for some responsibilities, but you can more efficiently outsource several tasks to freelancers as needed.
3. Adopt Remote Work
Remote work is a growing phenomenon. Already, almost 25% of all US employees work remotely all or most of the time. By adopting remote work policies, you can reduce the cost of pricey office space. Remote work, in combination with using more independent contractors, may enable you to cut real estate expenses altogether. Imagine all the ways you could reinvest that saved cash each month!
Depending on your industry and the nature of your business, you might not be able to convert your entire staff to remote work. That’s okay. Do what you can— every desk you free up in the office is extra money in your bank account at the end of the month.
4. Embrace Non-Traditional Marketing
It’s 2020—stop throwing thousands of dollars into TV commercials, radio ads, newspaper inserts, and billboards. There are more modern marketing strategies that promise a much higher ROI.
Take email marketing, for example. Email marketing boasts an impressive 4400% return on investment (yes, you read that number right). There’s also social media marketing, PPC ads, content marketing, public relations, word of mouth, and so many other tactics.
These modern marketing methods aren’t always cheap, but most of them make it easy (or easier) to measure ROI. By measuring ROI, you’ll be able to make more strategic financial decisions around where you spend your marketing dollars, and this information will help you identify weak areas to cut costs.
5. Offer Innovative Perks
It’d be great if every business could offer on-location spa and yoga centers, beer on tap, and annual bonuses. However, the reality is that’s just not possible for most small businesses. Instead of draining dollars on pricey perks, save money by spicing up your rewards. Consider these low-cost alternatives:
- Free Food—Not Free Meals: Maybe you can’t offer free lunch every day, but what about Taco Tuesday or Bagel Friday? Don’t try to outcompete the wealthy tech companies that provide free meals every day—it’s just not a scalable option for small businesses.
- Prime Parking: You might not be able to pay the whole company commuting stipends, but you can get creative with your rewards. Hand out a prime parking spot to your top-performing employees to recognize and reward their hard work. It’ll cost you next to nothing, but it’ll mean a whole lot of something to your staff.
- Team Outings: Instead of big annual kickoff trips to Mexico, consider simple team excursions. A company-sponsored trip to a baseball or soccer game isn’t too expensive, yet it’ll give you an excellent opportunity to bond with employees and build a more connected team.
6. Buy in Bulk
Buying in bulk may be more expensive upfront, but it can save you massive bucks down the road. When possible, buy your office supplies and inventory in bulk to cut costs. To avoid hurting your cash flow, get a business line of credit to cover large expenses.
Be careful when buying in bulk—you don’t want to become that Costco shopper who can never make it through their gallon-size jar of peanut butter before it expires. What a waste! Make sure you only buy in bulk what is absolutely necessary for your business. If employees drink coffee like it’s going out of style, then buying a 50 lb. bag of coffee beans isn’t a bad idea. However, buying 30 reams of paper for the printer that hardly gets touched just to pinch a few pennies is not a good idea.
7. Rent, Lease, or Buy Used Equipment
Purchasing brand-new equipment is like driving a new car off the lot—it’s much more expensive but doesn’t deliver much more value. To save money, you should rent, lease, or buy used equipment. You’ll spend considerably less cash, and you won’t have to worry about depreciation or equipment life expectancy. Your accountant will thank you later.
Start Cutting Costs
Make cost-cutting a regular part of your financial planning. There will always be low-hanging fruit to pluck, but you’ll likely need to dig deeper to find the smaller, less obvious expenses that need trimming. Remember, small cuts will lead to big savings, so don’t think you need to make massive changes to see worthwhile results.