How Small Businesses Can Cut Costs

Owning a small business can be extremely rewarding but also challenging. Many companies face financial hardship today with the increasing cost of living, inflation, and higher operation costs having huge negative implications. To help you minimise and mitigate the risks of money difficulties, we’ve listed eight crucial methods for keeping track of your business finances and cutting costs.

1. Review Expenses Often

All businesses should have an understanding of where their money is going. A key way to monitor finances is by conducting a quarterly or monthly review of all expenses. This task can help businesses identify any areas they can cut back on or spot any wasteful spending. For example, there may be a subscription to a tool that isn't utilised enough.

2. Reduce Energy Costs

Many of us are cautious of our energy use at home, and business owners should take this same care. Reducing energy consumption can result in considerable savings when operating from a physical location. Some ways to cut back on energy costs include:

• Have automated lights that only come on when people are in the room.

• Turn off equipment such as computers and electronics when not in use.

• Take care when it comes to the thermostat temperature.

Additionally, keep an eye out for energy companies that offer financial incentives for businesses that try to be more environmentally friendly.

3. Invest in Employees

A big cost to businesses, especially SMEs, is hiring new employees. As well as the employee's salary, other costs that can come into play are recruitment fees, training, equipment, turnover costs, and more. However, investing in existing employees where possible can save time and money in a range of ways, including:

• Reduced onboarding costs and training time.

• No job advertisement fees and recruitment agency commission.

• Enhanced productivity and performance of existing employees.

• Increased ease for predicting salary adjustments.

Promoting internally also has the added benefit of boosting employee morale, which can increase retention and reduce the need to hire externally.

4. Allow Remote or Hybrid Working

If your business model allows for it, allowing staff members to work remotely or implementing a hybrid model can save on significant costs, such as rent, utilities, and office supplies. Working remotely is easier than ever today, with many communication tools available, such as Slack, Zoom and more. Having fewer employees in the office and on-site can also lower operational costs, such as internet, electricity, and maintenance costs.

5. Negotiate With Suppliers

Many small businesses forget about the power of negotiation or feel too anxious to put it into practice. Speaking with service providers and suppliers about a better deal can result in significant savings, especially if you’ve been a long-term customer. Some tips on negotiating with suppliers include: 

• Build relationships: Having a strong rapport can lead to better flexibility and terms.

• Be clear: Ensuring your contact knows your exact requirements helps to avoid misunderstandings.

• Know your budget: Set a firm budget beforehand to avoid overspending. 

• Don’t be afraid to ask: Simply ask suppliers if they offer discounts to save costs.

• Leverage competition: Mention other suppliers and their deals, many will try to match. 

It’s also important to check other suppliers for better deals — don’t be afraid to switch if they offer a better price for their service without compromising on quality.

6. Invest in Automation and Tools

Automation tools and technology can save businesses money in a range of ways, including reducing mistakes, cutting down on labour costs, and improving efficiency. Some tasks that can be automated include customer communication, social media posting, payroll and invoicing. For example, investing in accounting software (such as accounting software) can help save money when it comes to efficiency as not as much time is needed to fulfil this task, reducing the chance of mistakes and therefore reducing the risk of fines.

7. Outsource Tasks Where Possible

Some tasks won’t require hiring permanent full-time employees and could instead be outsourced to freelancers. Common tasks that companies can outsource include IT support, marketing and social media, and accounting and bookkeeping. Although automated accounting software can enhance efficiency and cut costs, outsourcing the work to an accountant can help small businesses control expenses, manage cash flow, and optimise tax strategies. They can also identify unnecessary costs to cut, advise on debt management, and maximise tax deductions and credits. 

8. Buying Second-hand and Selling Unused Equipment

Furnishing an office space is essential but expensive. Whether you have a full team or just a couple of employees, the cost of office furniture, technology, and supplies can add up. Buying these items secondhand at a lower price is much more economical than buying brand new. Of course, certain equipment might be better to buy brand-new, such as laptops to successfully do the job, so be sure to consider what is most suitable to purchase pre-owned. Furniture and supplies can always be upgraded in the future, and when this time comes, selling old equipment can bring some extra finances which could go towards upgrading office supplies or investing in other areas of the business.

Cost Cutting Strategies To Avoid

Although cutting costs is a key part of growing a business, some cost-cutting measures can harm businesses and should be avoided. Opting for cheaper materials, products, or services could reduce costs, but this could also affect quality and potentially cause more complaints, returns, and customers boycotting your business. Also, cutting employee benefits or pay isn’t a recommended way to cut costs. If employees feel undervalued, their morale will drop significantly which will likely affect the quality of work and could even lead to employees resigning and lead to an increase in rehiring costs. 

In general, it’s best to avoid cutting costs if doing so will affect employee well-being, quality, customer service and experience, or compliance. Major changes to any of these can often result in further expenses, disruptions, and negative impacts on profitability and growth in the long term. 

Cutting costs is essential for small businesses in order to maintain financial health and remain competitive in today's economic environment. It’s important to be strategic when cutting costs to avoid negatively affecting the quality of your products or services. Effectively managing your finances can help your business not only overcome any financial challenges but also set you up for long-term success and growth.

The information on this website is provided free of charge and is intended to be helpful to a wide range of businesses. Because of its general nature the information cannot be taken as comprehensive and they do not constitute and should never be used as a substitute for legal, accounting, tax or professional advice. We cannot guarantee that the information applies to the individual circumstances of your business. Despite our best efforts it is possible that some information may be out of date. Any reliance you place on information found on this site or linked to on other websites will be at your own risk.