There are only two ways to make more profit in a small business: increase revenue or reduce expenses. While the timing of increasing sales to customers is not always within the direct control of the owner, cutting expenses is. The difficult part is knowing which expenses to reduce that will not affect the ability of the company to grow its revenue.
The key is to start asking all vendors for a lower purchase price. This can be especially effective if the small business has been a loyal customer for a long time. It should include any part of the company’s cost of goods sold. A reduction here can increase gross profit and have a substantial effect on net profit.
Here are ten ways to reduce general expenses that can have little effect on sales, but can boost a business’ bottom line.
Ask for a reduction in rent, especially if company sales are not going as planned. This may include extending the lease in exchange for a lower monthly rate. Alternately, unless the business is a retail location, determine whether the company really needs office space or if everyone can work remotely. Remember, with no office, there will also be no utility bills.
2. Cell Phone Bills
Call the provider and ask them for suggestions on how to reduce the monthly fee. This may include cutting features that are not used or switching your existing data plan for a lower-capacity plan. Use free Wi-Fi instead of a cellular connection whenever possible. Sites like MyRatePlan.com can help with comparisons.
3. Merchant Fees
There are typically a lot of extras in these banking costs. They can include additional paper documentation, charge backs and interchange fees. Learn what they are. If the fees are too high, go out and shop for a lower rate since many alternatives are now available.
4. Credit Cards
Call the company and ask for a lower interest rate, especially if your payments have always been made on time. The alternative is to utilize a balance transfer offer (usually a 3% fee and no interest for one year) to change credit card companies. If your small business operates in other countries, make sure any credit card that is used does not charge foreign currency transaction fees.
Determine which ones actually contribute to growing revenue and which ones are administrative overhead and can be let go. Employees can also be replaced with freelancers that only bill when there is work to be done. Matching revenue to variable people expenses in this way will cut overall costs and immediately boost profitability.
6. Phone Service
Consider Voice over Internet Protocol (VoIP) as an inexpensive way to provide centralized service for the company in an office environment. Companies like Nextiva offer services for as low as $20 per month.
7. Travel Expenses
Ask if the meeting really needs to be done face to face or if a video call can be a substitute. If travel is required, book air travel far in advance. Use services like Kayak to compare fares. Use mobile apps like Hotel Tonight to get drastically discounted rates from brand hotel chains.
8. Bank Expenses
Since the Great Recession of 2008, banks have added additional fees in an effort to raise revenue. Review the company’s monthly bank statement to see what is being charged. For any bank line of credit, ask for a fee reduction if timely payments have been made. The alternative is always to change to a bank that has lower fees.
9. Reduce the Electric Bill
According to Kelly Gallagher, President of Everlights, “The quickest way is to change your existing lighting to more energy-efficient lighting. For most businesses, the cost of turning on the lights is the bulk of their electricity costs. All modern light fixtures—can (recessed) lights, desk lights and fluorescent—can benefit from more energy-efficient bulbs.
For example, by using an LED 11-watt A19 bulb in place of a conventional 60-watt incandescent bulb, you will instantly save 49 watts per socket. These simple changes often pay for themselves within a year. Unplug devices nightly, since most draw a small amount of energy so they can be turned on quickly. There are also power strips that can block this energy from being used.
The purpose of insurance is to protect what an owner can’t afford to lose. If the business is small, does the owner need to protect against a loss? This may not make sense if there is financially very little to lose inside the company. Alternately, raise insurance deductibles. Finally, don’t have employees pay for airfare or rental car insurance, since most charge cards cover this. It is, however, your responsibility to see which types of insurance are afforded by your chosen card.
The key for reducing expenses is not to do it in a haphazard manner. Each cut needs to be planned out. If there is a doubt about whether to eliminate an expense, go ahead and do it to see what the results are one month later. In many cases, owners will be surprised how much money they have saved with no loss of revenue to the company.