9 cost reduction strategies that work for small businesses

While cost-cutting is a short-term tactic for generating immediate working capital, cost reduction is the proactive, strategic process of identifying and eliminating wasteful expenses. In other words, cost reduction strategies optimize your spending over time, maximizing value and efficiency across your organization.

This can be invaluable for small businesses, improving cash flow, increasing profitability, and helping to build financial stability. However, it’s especially necessary in challenging economic times like 2025, where average real revenue dropped $11,850 per small business—the third consecutive year-over-year decline.

Let’s explore nine of the most powerful cost reduction strategies you can use to improve efficiency and resilience in your small business.

Jump to:

1. Evaluate and renegotiate vendor contracts
2. Consolidate suppliers
3. Embrace remote or hybrid work models
4. Leverage accounting automation and cash flow forecasting
5. Optimize inventory management
6. Review and reduce subscriptions
7. Promote a cost-conscious culture among employees 
8. Leverage a smart business credit card
9. Evaluate and transform business processes with technology 

1. Evaluate and renegotiate vendor contracts 

Renegotiating vendor contracts is one of the fastest ways to reduce business expenses without impacting your performance. Here’s how to do it.

Regularly review all agreements

Keep a master list of your supplier and service provider agreements, making sure to detail payment terms, pricing, and renewal dates. Make reviewing it for opportunities to renegotiate a part of your year-end checklist.

If you ever find you’ve been doing business with a vendor for an extended period without revisiting terms, consider:

• Asking for a better volume discount
• Exploring the possibility of loyalty incentives
• Requesting longer repayment terms to improve cash flow

It’s often beneficial to shop around for competing quotes at the same time. If you find better offers than what you’re currently getting, you can use them to strengthen your bargaining power with the original vendors, or simply take your business elsewhere.

2. Consolidate suppliers

Working with too many vendors tends to create unnecessary cost and complexity. Let’s explore how you can reduce both by consolidating suppliers.

Streamline your supply chain

Reducing the number of suppliers you work with often allows you to increase your purchase volume with each remaining vendor. As a result, they’ll often reward you with better pricing or preferred customer status.

Over time, investing more heavily in fewer relationships naturally helps you build stronger connections. That can result in benefits like:

• exclusive discounts
• priority support
• more favorable payment terms

You may even see some indirect savings through reductions in administrative overhead. 

• For example, with fewer vendors to manage, your team can spend less time submitting orders, processing invoices, and coordinating shipments, freeing them to focus on more valuable tasks.

Mitigate risks while consolidating

Consolidating suppliers can lead to significant savings, but it also increases your dependence on each vendor. This exposes your business to a greater risk of disruption if one of them experiences supply chain issues or raises prices unexpectedly.

To protect yourself, avoid becoming over-dependent on any one supplier. Maintain relationships with a few backup suppliers and develop contingency plans in case your business needs to pivot.

3. Embrace remote or hybrid work models 

Flexible work models have become much more common since the COVID-19 pandemic, with the percentage of fully-remote workers nearly doubling from 6.5% in 2019 to 12% in 2025. Here’s how adopting one can be beneficial to employers.

Reduce real estate and overhead costs

Between rent, utilities, maintenance, and other overhead costs, maintaining a traditional office setup is often one of the most expensive parts of running a business. By switching to a remote structure, you can greatly reduce your fixed monthly expenses.

Even a hybrid approach—such as a rotating work schedule that only calls a portion of your team into the office at any point—can decrease your space requirements, supply costs, and cleaning expenses.

Boost productivity and employee satisfaction

In addition to reducing overhead, studies have shown that remote and hybrid work schedules improve operational efficiency and productivity, contrary to what employers may expect.

More specifically, flexible work schedules generally increase satisfaction levels for employees. Not only does this result in a higher overall output, but it also leads to fewer sick days and less turnover, reducing the cost you pay to hire and onboard new employees.

4. Leverage accounting automation and cash flow forecasting 

Manual financial processes are slow, prone to errors, and expensive. Let’s explore how accounting software can help improve efficiency. 

Automate expense and invoice processing

Financial management is another cost-intensive business function, but modern automation can significantly streamline aspects like expense and invoice processing, helping you avoid the costs and error rates associated with manual data handling.

For example, consider this comparison between the efficiency of manual versus automated accounts payable (AP):

Bookkeeping software like QuickBooks is one of the most effective tools for increasing financial efficiency. It provides real-time visibility into spending and helps you conduct cash flow forecasting, so you can anticipate your future needs and any potential cash shortfalls or surpluses.

Prevent wasteful spending with automated controls

In addition to making your financial processes more efficient, accounting automation can help you identify opportunities for cost savings. For example, by analyzing transaction data, these tools can:

• Catch duplicate payments to vendors
• Highlight inefficient spending patterns
• Flag unapproved employee expenses

Preventing or resolving wasteful spending is much easier when your accounting system scans for problems automatically and informs you instantly when it spots potential issues.

5. Optimize inventory management 

Inventory is a huge cost driver for many businesses. Here’s what you should know to manage yours more efficiently.

Minimize carrying costs

Keeping inventory on hand can help you meet ongoing demand, but any excess reserves tie up valuable working capital. In addition, they increase both storage costs and the potential for product spoilage, damage, or obsolescence, all of which hurt your bottom line.

As a result, another powerful cost-reduction strategy can be to maintain inventory levels that are just sufficient enough to keep up with customer orders while minimizing carrying costs. Tools like QuickBooks Online can help you organize your efforts.

Implement demand forecasting and JIT principles

Optimizing inventory levels requires careful planning. You can use forecasting and demand planning tools to accurately predict customer needs and adjust your stock accordingly. These solutions analyze your long-term sales trends and seasonal fluctuations to help you determine exactly how much inventory to keep in stock over the coming months.

To minimize your reliance on an inventory reserve, consider these strategies:

• Just-in-Time (JIT): Order inventory only as you need it to fulfill incoming orders. This strategy requires a consistently reliable supply chain and production process.
• Vendor-Managed Inventory (VMI): Your suppliers take responsibility for managing and optimizing your inventory levels. This involves placing a significant amount of trust in a vendor.

Whichever procurement cost reduction strategies you use, tighter inventory management will reduce your losses from products that expire, become damaged, or go out of fashion before you can sell them.

6. Review and reduce subscriptions 

Software-as-a-service (SaaS) subscriptions can help solve operational challenges, but having too many can create a drag on your profitability. Here’s how to prevent that.

Conduct a comprehensive SaaS audit

Ever had a moment of panic after realizing you’re subscribed to six streaming services, despite only ever watching Netflix? If you’re not careful, the same thing can happen to your company.

Just like individuals, businesses tend to accumulate subscriptions for software or services that can become underutilized, redundant, or simply forgotten over time.

As a result, conducting regular audits of your tech stack can be a great way to identify unnecessary expenses. For example, consider looking for:

• Active subscriptions for former employees
• Multiple solutions with overlapping functionalities
• Tools that aren’t being used to their full potential

Cancel any recurring payments you find for solutions that aren’t adding value and redirect those funds to something more useful.

Negotiate better terms or downgrade plans

After eliminating wasteful subscriptions, revisit the ones you’ve deemed essential and look for ways to reduce your costs further, such as by downgrading to a less expensive tier that still meets your needs.

Alternatively, consider reaching out to your provider and renegotiating your rate, especially if your relationship has strengthened since the last time you discussed pricing. Some tactics you can use for additional leverage include committing to a longer contract or bundling services.

7. Promote a cost-conscious culture among employees 

You’re not the only person in your organization responsible for managing expenses. Here’s how you can drive efficiency by creating a cost-conscious culture.

Foster financial accountability

If your team isn’t on board with your cost reduction vision, overspending will inevitably creep into your operations. A company-wide mindset of financial discipline is essential for sustainable cost reduction.

Some ways to foster this kind of financial accountability include:

• Assigning budgets to individual department leaders
• Authorize workers to make smart trade-offs where beneficial
• Actively asking employees where they see waste in their daily operations

Generally, your employees will be better at cost management when they feel responsible for outcomes and empowered to make decisions.

Provide training and clear guidelines

To develop consistently effective cost management practices, you’ll typically need to provide your employees with official training sessions as well as documented guidelines they can refer back to.

Each of these should be tailored to individual departments to ensure relevancy. In addition, they should ideally cover not just how each department should operate, but why.

8. Leverage a smart business credit card

Business credit cards can be invaluable tools for managing company spending. Here are the most significant benefits.

Earn rewards on everyday spending

The best corporate credit cards provide robust rewards that turn necessary business expenses into savings opportunities by generating points or cash back with each purchase.

The ideal program should provide multipliers on your most common expense categories. For instance, if your operations involve frequent travel, you might look for a credit card that offers elevated rewards on flights, hotels, and rideshare purchases.

Through partnerships with vendors, many corporate cards also offer a catalog of exclusive discounts and perks on essential business services, offering further opportunities to reduce expenses.

Gain real-time spend visibility and control

In addition to generating points or cash back rewards, many modern corporate credit card programs include sophisticated expense management features, such as:

• Real-time expense tracking
• Automated receipt capture tools
• Customizable spending limits down to the individual

When you issue corporate cards to your team, these systems can help you prevent overspending, identify transactions that fall outside company guidelines, and streamline employee reimbursements.

9. Evaluate and transform business processes with technology 

With the right technical solutions, you can turn operational weaknesses into competitive advantages. Here are some strategies to consider.

Identify and address inefficient workflows

Manual, paper-based, or otherwise outdated workflows can be a significant source of wasted time and resources. Not only are they less efficient than automated workflows, but they also tend to have a higher error rate, creating further costs.

Conducting a regular review of key operational processes can be a great way to identify potential bottlenecks or redundancies, allowing you to implement more efficient solutions.

One powerful option is Robotic Process Automation (RPA), which uses software robots or artificial intelligence (AI) to automate repetitive, rule-based tasks like data entry, invoice processing, and report generation.

Its unique flexibility makes it applicable to a wide range of tasks, often resulting in a high return on investment (ROI).

Explore low-code platforms for custom solutions

Low-code development platforms are another potentially high ROI solution to explore, allowing users to build custom applications and integrations without extensive coding knowledge.

Suppose you don’t have a large information technology (IT) budget or are interested in strategic IT cost reduction strategies. In that case, these platforms can be an affordable way to create and scale tailored solutions.

As other popular business platforms incorporate AI into their software, you may be able to achieve something similar without even needing traditional development tools—low-code or otherwise.

For example, Intuit recently embedded AI agents into QuickBooks Essentials. Customers can utilize them to streamline workflows across various functions, such as accounting, financial analysis, and customer relationship management.

The AI Payments Agent, for instance, can automatically predict late payments, generate invoices, and send reminders. On average, users receive payment five days faster.

Next steps for managing your cash flow

Cost reduction strategies are essential for effective money management, but they’re only part of the equation. Cash flow projections are also necessary, helping you predict future inflows, outflows, and potential shortfalls so you can adjust accordingly.

Simplify your cash flow forecasting with QuickBooks Online, which includes real-time reporting features and a dedicated cash flow planner tool designed to streamline the process.