13 Simple Yet Effective Ways to Reduce Business Costs
As small business owners, your business is probably haemorrhaging a whole bunch of costs and you’re looking for a way to cut it all down and reduce business costs.
The key to a business's survival is its cash flow. Without financial resources, businesses are unable to grow, it's important to save money where you can.
82% of businesses fail due to a cash flow problem. Reducing the costs of your business isn't necessarily an expensive process. All you do is choose wisely to reduce costs. We created 13 quick tips for reducing your business costs.
This article will cover 13 quick and actionable ways to reduce business costs and find cheaper alternatives and reach stability and profitability faster. Ready for your cost reduction strategies?
Key Takeaways
- Simplify your business processes. Simplified processes will mean fewer business costs
- Consider going digital with a lot of small costly tasks
- Find an alternative place to work
- Stay on top of your software subscriptions, suppliers and teams. You’ll be able to find better alternatives that suit your business's financial situation
- Change Your Place of Work
COVID-19 has inspired a new way of working, a way that was completely unimaginable but people are now running businesses from home and working in a hybrid format.
There's no longer a need for long-term leases to rent offices or work units. Automatically this can largely reduce business costs. Alternative places to work from could be:
- Work from home
- Cowork
- Get smaller units
- Have an out-building
- Work from coffee shops
- Create An Expense Overview and Budget
The best way to understand how to save money for your business is by analysing where you're currently spending money.
A great way to do that is by having an expense report that can help you break down each section by category.
We've created a great guide on expense reports here, feel free to check it out after this.
Having a business budget acts as a guiding principle to company spending and can help make better decisions when cost-cutting.
If you're a traditional business owner, then you could look to automate tasks with technology that require a lot of manual labour and staff time.
Doing this step alone can cut costs and increase cash flow by more than half. You can read our helpful guide on expense management and digitisation here for more information.
What you should not do is embark upon a cost-cutting exercise where the quality of your products and services are compromised, and existing customers have to suffer for that, that's bad for business.
- Push Digital Marketing - It's cheaper to market online than offline
Traditional ways of marketing are not over, in fact, they are far from that. Coca-cola does not continue to post ads on billboards if they were not effective.
However, as small businesses, we do not have millions of dollars at our disposal either, so we need to start finding ways to reduce production costs. In addition, you can find cheaper alternatives and reduce business expenses by looking for more effective methods of paid advertising.
So what are our options?
- Social media advertising
- Pay-per-click (also known as Google Ads)
- Search engine marketing
- Content marketing
- YouTube (vlogs)
and more.
Using these methods of marketing is vastly cheaper than traditional forms of marketing.
For example, It may cost you £10,000 to advertise on the London Underground for a month to get in front of millions of people. But, using Google Ads and other marketing techniques, you could have similar results if accurately targeted for a fraction of the cost, this includes production costs too.
- Create an Expense Policy
An expense policy is a document created on the behalf of the company for your teams. A policy dictates what expenses can and cannot be claimed.
An expense policy proves to be a great advantage when cutting costs because it lets you control where money is being spent and with pre-defined amounts too.
See how you can create an expense policy for your business using our step-by-step guide.
- Automatic Subscription Renewals? It's time to negotiate
The failure of companies is that they continually renew subscriptions while forgetting to use the tools they subscribed to in order to accomplish tasks more quickly and efficiently.
I'd encourage making a list of all the subscriptions you have for your business and going through a cost-cutting exercise by:
- Reduce costs by unsubscribing from things you're not using
- Turn off the auto-renewal process
The purpose of this is to regain control over where money is being spent.
Some examples of auto-renewing subscriptions would be:
- Software
- Phone contracts
- Utilities (gas, electric and water)
- Spotify
- Email accounts
- Insurance policies
and more.
More often than not, businesses are willing to give loyal customers better deals on their renewals.
- Missing Payments Can Cost You
Timeliness is key. As a business owner, and holder of several financial accounts whether it be American Express or Mastercards, these are lines of credit.
When payments are missed with the banks, it builds on interest which you end up paying and losing money. What's worse is that it impacts your overall credit rating too!
The ExpenseOnDemand expense management software helps control the costs of your entire team and work with the limits that are defined by you, the business owner.
This means, your colleagues do not overspend or max out company credit cards before they have your approval on a purchase. Interested to see how it works? Book a free 10-minute demo.
- The Power of Freelancers
Technologies like Fiverr and UpWork empower businesses today. It's had a tremendous impact on cost reductions. Companies realise that they do not need to employ people all the time but rather contract them in for part-time work or some freelancing.
Whilst the market for freelancing is heavily saturated, it's advantageous to business owners who are looking for some talent to do one-off work or work that needs to be done every few weeks.
The difference between freelancers and agencies is that freelancers focus on a single project at a time, ensuring their delivery in quality is better than overworked part-timers and agencies.
Be sure to do your own vetting with freelancers before hiring or using them.
- Equipment and Resource Sharing
There is no harm in downscaling your office space to bring efficiencies to your business. That is hardly the case.
There used to be a requirement to go to the office. However, with people working from home, in coffee shops, at neighbours' houses, or even abroad, having a fixed location for an office seems less likely these days, thus reducing operating costs.
How much money could you save if your business didn't require fixed office space?
- Rent
- Gas
- Electrics
- Internet
- Phone
- Office supplies
and more.
Sometimes it's not so simple.
For example, if you're a production house and business is slow right now, you could partner up with like-minded businesses.
It would be very helpful to share your resources with your colleagues in a similar industry. For you, it keeps the money coming in and for them, it gives them access to the resources they need.
- Make The Most of Tax Reliefs
Whilst this isn't a direct action for cost reduction, it indirectly works. Local governments have several schemes that are designed to help small businesses start and thrive.
Depending on the nature of your business, you could be entitled to tax relief. Tax reliefs can help you claw back some of the cash being spent on the business.
- Tracking Expenses
Data speaks. Having an area or a system that can display historic expense data can help set the track for future forecasting. Expense reports are a good way to run a cost-benefit analysis and start to cut costs in areas that are burning out company resources.
We have a helpful guide on expense reports and the benefits of having one. Read more about expense reporting here.
- Invest in Technology
Once upon a time, man would spend laborious hours farming for grains, building contraptions to make things better, and pacing up and down the villages for water. Until the industrial age made a glowing appearance.
During this time, people were constantly building and devising new ways to bring efficiencies to their farming, fetching water and making everyday life better.
The principle still stands today for business. Invest in technology that is going to improve your processes, drive efficiencies and cut business costs.
Since November 2022, OpenAIs ChatGPT took the internet by immense surprise. It put the fear of god into Google that forced them to strike a red alert. ChatGPT is an example of incredibly power AI that can help simplify and automate mundane tasks.
ExpenseOnDemand does a great job at that by offering a business expense management solution. It's a powerhouse of a tool that's built on an AI framework, designed to help businesses get smarter with expenses. The tool increases the speed of the workforce, drives accuracy to business data and cuts down the laborious and mind-numbing manual activity of data entry.
In turn, this immediately begins to cut down the staff time required, the cost of errors produced during expense reimbursements, miscalculated taxes and more.
If your business is a victim to manual expense management, it's time to start digitising those journals, piles of receipts and invoices on your tables and ledgers into a beautiful and simple-to-use dashboard. We'll show you how you can do it too - for free. Book a demo.
- Leverage Employee Skill Sets
People nowadays are full of surprises. No one person has a single talent or a single way of being. Understanding your team and their potential can help maximise opportunity and cut costs in areas that they're not required.
You wouldn't tell your finance manager to stack the shelves with the new printing paper, would you?
Putting people in the wrong positions costs businesses hundreds if not thousands a year. Drive operational efficiency by allocating the right people for the right tasks.
- Inspire Change
You can create a zero-waste culture within your organisation if you hold employees accountable for costs and reward them appropriately for reducing expenses.
In addition to motivating staff to stay on task and be creative in cost reduction initiatives, it helps them stay on task. Furthermore, implementing this approach encourages everyone in the organisation to be more mindful of their spending, resulting in more responsible and sustainable practices.
For instance, by introducing a reward system that incentivises employees to identify more cost-effective methods, they are more likely to think of creative solutions that could reduce business costs.
- Test The Market
B2Bs fall a victim to this one. Let's face it, running a business is hard and during that process, building relationships with reliable people is even harder.
As humans, we fear jeopardising relationships that work for us.
In business, you sometimes have to. - In a good way.
Let me explain.
When you agree on a deal from a supplier, it's usually in the bulk of something at a fixed cost. Going forwards, you're expected to pay the same amount of money for the same quantity of goods.
For example: If you are in a dessert lounge, you want to put in an order for ice cream. Each 5L of ice cream costs you £16 fixed, regardless of the flavour.
As far as you're concerned, you have the best deal for a 5L tub of ice cream.
However, it's good practice to reevaluate this agreement with the supplier yearly to ensure you still are getting the best deal and can cut costs where necessary.
There's nothing wrong with shopping around at other options too provided your quality doesn't decrease either.
