Small businesses have a number of regular operating expenses to worry about, whether they are for labor, utilities, GS&A (general, sales and administrative expenses), inventory, or other smaller costs relating to the running of the business. Wise small businesses owners make it an ongoing priority to find ways to better manage these recurring costs.
While there is no single financial strategy or tactic that will work for every small business, there are some universally applicable tips for managing and reducing operating costs that almost any small business can learn and benefit from.
Since we at Direct Capital work closely with many small business owners who are actively trying to improve their business’ financial strategy, we wanted to find out about different kinds of operating cost strategy. More specifically, we wanted to learn some cost-saving tips from small business finance experts on how to better manage business operating costs. To do that, we asked 30 small business experts the following question:
“What’s the #1 way small business owners can reduce operating costs?”
We’ve collected and compiled their expert advice into this comprehensive guide to small businesses operating cost reduction strategy. See what our experts said below:
Meet Our Panel of Small Business Experts:
Alan Lund is Managing Partner of CORE Business Management Solutions, a Michigan-based business advisory firm that focuses on assisting companies to achieve and sustain profitability. Alan has devoted the past 20+ years to providing operational management and process/profitability improvement assistance to a wide variety of industries and organizational entities. Clients have ranged from as small as a 4 employee entrepreneurial start-up to a 16,000 employee, multi-site logistics organization. Alan’s book “Accelerating Profitability” is being published by Waldorf Publishing and will be in stores July 2015.
During my 20+ years of providing business advisory services, I have worked with over 200 small business owners to implement process and profitability solutions. Clients have ranged from as small as a 4 employee entrepreneurial start-up to a 16,000 employee, multi-site organization. Industries served included manufacturing, transportation, software, retail and service sectors. From my observations, the #1 way small business owners can reduce operating costs is to…
Adopt and implement a business code based on ‘Cash is King’.
With this as a guiding principle, business owners need to operate and manage their business via what I call the ‘Check Book Approach.’ Since nothing is business is by all means simple, managing by the check book approach requires that business owners:
1. Know the true costs of the products and/or services they provide.
From my observations, the vast majority of business owners do not know. They are driven by market forces that they have determined set the value. If a business owner does not know their true costs, the inevitable happens – Lack of capital access causes a downward spiral. Remember, it’s extremely difficult for a business to ‘cut their way to profitability’.
2. If Cash is King, then ‘Data is Queen’
Business owners must utilize ‘Accurate’ data. This demands that businesses verify and validate the data used to drive the business. I consistently find that data (sales, costs, materials, time, markets, productivity, units/hour, etc., etc.) is not accurate – actually, far from it. Cleaning, verifying and validating data takes time, energy and consistency. When a business owner really knows and manages by ‘Cash is King’ and knowing true costs, they can target resources on the specific areas where cost reductions gain the ground for business stability and growth. Otherwise, it’s difficult to see the forest because of the trees.
Deane Price is the Senior Vice President and Chief Operating Officer of Aderant, the world’s largest independent legal software provider. She has more than 25 years of executive management experience and has an extensive background in software company operations, professional services, and research and development leadership. Before joining Aderant, Price served as Chief Financial Officer of Ventyx Inc, the world’s largest provider of software to the energy and utilities industry and was also a key member of the transaction team culminating in a transaction valued at over $1 billion to sell Ventyx to ABB. Price joined Ventyx via its acquisition of NewEnergy Associates, LLC from Siemens. Price was the President and CEO of NewEnergy and a founding principal of the company. NewEnergy provided planning and operational software and associated services to the energy industry. Prior to becoming the President and CEO, Price was the Chief Operating Officer and held many positions of increasing responsibility covering all areas of product consulting, software development, and back office operations.
The number one way for a business to reduce operating costs is to…
Understand what the costs are to a very granular level and control them aggressively.
Pre-approve any spend. Never spend in advance of a need, even if you are getting a great deal. My experience is things change enough that if you buy months in advance of a need, your need may change by the time you utilize your purchase. Finally, I believe every employee can help reduce your costs, improve productivity and increase revenue; so by incenting them via a profitability bonus (which by definition includes revenue increases and cost decreases) you can actually save money while rewarding employees.
Matt Peterson is the President and CEO of eFileCabinet, a leading paperless management solution for businesses.
One of the most important things a small business can do to reduce operating costs is…
Implementing document management software (DMS).
DMS can create quick-wins on an organization’s balance sheet, lower overhead 30% to 40%, and drive profitability and growth. For example, it frees up administrative time spent locating and retrieving documents, saves an organization’s IT spending, stationery expenses, document storage space and improves workflow.
Gary Brooks, CMC, CTP is nationally recognized as a family business and management professional and is a Principal at BMD Advisors. He has over 40 years of diversified executive management and experience. He has personally counseled and provided management services to more than 200 companies. Mr. Brooks was a founding member of the Turnaround Management Association (TMA) and also served as Director and as National Chair of the Institute of Management Consultants (IMC). He writes frequently for publication in Journals serving the profession and lectures often on Entrepreneurship, Family Business management and Restructuring of under-performing enterprises. He has also served as Visiting Professor at Schools of Business Administration of the NYU/Poly University, Fashion Institute of Technology, University of Massachusetts-Amherst, University of Texas-Arlington
There are really two priority issues that, if addressed, can significantly reduce operating costs:
1. Activity Based Costing to understand the total costs (by function) to deliver products or services to customers. Costs of quality (rejects, returns) & distribution (e.g. discounts, warehousing, shipping, idle-non billable-time of service personnel) are often culprits not visible without attention to activity costing.
2. Sound management of inventory & accounts receivable. Most of the operating cash is invested in these assets. With disciplined management, significant amounts of cash can be released and profitability improved.
Katie DeCicco is the CEO of Celebration Saunas, Inc. and has been in the infrared sauna industry for the last 7 years. She started the company as a one woman show in 2013 with $400 and a $7500 credit limit. Today her sales exceed $100k per month.
In my experience, my biggest strategy to save on operating costs as a new business owner is…
Automating as much of the sales process as possible by answering every possible question in my website content.
I also provide constant follow up contact with the customer once the order has been placed through automated emails addressing any and all questions about their new product. I only work with the best freelancers in the world to provide me with fortune 500 expertise in advertising, web design, graphic design, accounting, programming and more.
I have also trained a call center to answer common questions and process orders. My buyers are able to speak with a live person 24/7. All of these services are provided on a project by project basis a cost effective solution to hiring a full time employee with only the expertise your budget affords you.
This organizational structure allows me to be more agile than my competitors, I can offer lower prices and provide more personalized attention to buyers. Personalized attention to customers leads to positive reviews, referrals and more sales. By using multiple freelancers and services with fortune 500 expertise I pay the equivalent to a modest salary and reap the benefits of my fortune 500 mentors.
Ben Landers is the President of Blue Corona, a 45 person digital marketing and analytics company that helps other small businesses accurately track their advertising initiatives and generate more leads and sales from the web. Over the past eight years, he has helped more than 100 small business owners reduce advertising and marketing waste and use data to increase their net profit.
In my experience–both with my own company as well as with our clients–the best way for small business owners to reduce operating costs is to…
Develop better habits with respect to financial reporting and analysis.
Income Statements need to be set up properly by someone that really understands the business (rarely is a general CPA sufficient). I see a lot of small business owners listing things that really should be filed under COGS as Expenses. As a result, their gross margins are wrong. This leads to all sorts of bad decisions.
Another Income Statement mistake is creating overly generic “catch-all” categories. Catch-alls become hiding places for waste. Kill them. Once you have your Income Statements set up correctly, you’ve got to review them (carefully) on a regular basis. Most businesses also need to create additional management reports in order to optimize their expenses.
Edward Barnett is Co-Owner of PCF Restaurant Management, 2014 California Small Business of the Year Award winner. Mr. Barnett and his business partner Karim Webb own 3 Buffalo Wild Wings locations in Southern California (www.lawildwings.com). Edward runs the financial side of PCF Restaurant Management and is the Vice President, Private Capital Group of Newbury Capital Management in Los Angeles.
The #1 way small business owners can reduce operating costs is to focus on…
Taking a close look at your labor costs, which is often the biggest line item. My first action would be to tighten up staff time sheets. Take a close look at whether or not your staff members are operating efficiently and accurately clocking in and clocking out. That time adds up and can offset your overall numbers. It is easy to overlook, but can really cost a business.
Jared Siegel, MBA is the Partner at Delap LLP, one of the largest accounting firms in the northwest serving businesses for 82 years, where he leads their consulting practice.
The #1 way to reduce operating expenses is to…
When CashFlow isn’t optimal, the wrong financial instruments are leveraged and matched with the wrong business needs, new opportunities are missed, cost of capital in increases… the list of symptoms is lengthy.
There are some ways that you can evaluate your cash flow and discover missed opportunities. If anything, certainly a good financial partner can alleviate some of the symptoms of CashFlow.
Maria Bernal is the Project Manager and Marketing Strategist at DoItWiser, a company that creates opportunities for small business looking to save resources while protecting the environment.
When it comes to the #1 way small business owners can reduce operating costs, this is my advice:
As Benjamin Franklin once said: “Beware of little expenses. A small leak will sink a great ship.”
If you ship multiple packages to final customers, one of the main areas where you can be spending extra money without noticing it’s freight charges, you need to check the bills carefully looking for fees like residential or dimensional weight, there are new companies in the market offering competitive rates for regional deliveries. Other common areas where you can be overspending are Telecom services and Packaging. My main advise is never get used to use the same provider over and over again, do the job and look for new options, it’s worth it.
Rayfil Wong is the CEO and Founder of Professor Savings, a YouTube Channel that teaches finance basics.
We have been able to scale our startup to over 350+ videos on youtube by reducing operating costs. What we’ve learned is that the most expensive expenses are office costs. One big tip I would give to startups and small businesses for saving on operating costs is to…
First, start working out of co-working spaces.
Secondly, labor cost includes paying for insurance and benefit. So, start off with hiring freelance workers from Elance.com and other freelance sites.
Jonathan B. Smith is the Founder of ChiefOptimizer, where he works with entrepreneurs who have “hit the ceiling” and need help in scaling up their businesses. He is also an entrepreneur, Scale Up Expert, High Growth Business Strategist, Speaker, and Certified EOS Implementer. He is a former Inc. 500 COO who scaled a business from $500K t0 $15 million in five years.
The #1 way for small business owners can reduce operating cost is to…
Establish clear accountability for their employees.
Lack of clarity about employees roles and responsibility results in confusion, indecision and waste. Payroll is typically one of the most significant operating costs for a small business, maximizing its efficiency, effectiveness and output is a sure fired way to reduce operating costs.
Omar Khan is career procurement professional with more than 30 years’ experience in the field. Omar has held management positions with Fortune 500 companies where he negotiated multimillion dollar supply contracts with US, EU and Asian companies. Currently, he is a senior consultant with Procurement Solutions Group, where he provides hands on support to small & medium size manufacturing companies in their cost reduction projects.
The #1 way small business owners can reduce operating costs is to focus on the most dominant cost area common to all small business models:
Inventory and the strategy to reduce the cost in that area.
Interestingly, many companies looking to reduce costs often ignore the impact of inventory sitting in their warehouses and the cost of carrying that inventory. Typically, inventory cost can run from 40% to 70% of a company’s revenue dollars depending on the nature of the business. Inventory carrying cost is comprised of; cost of capital (needed to finance the inventory purchase), warehouse, material handling & equipment, labor & administrative personnel for operating the warehouse, insurance, taxes, shrinkage, utilities and much more. Inventory carrying cost can add up to 20% to 25% of the inventory value on top of the inventory cost. To put it in proper perspective, a manufacturing company, a distributor or a retail store with $10 Million in annual sales revenue would be carrying approximately $6.0 to $6.5 Million or more in inventory and incurring another $1 Million to $1.5 Million in inventory carrying costs. Put another way, larger the volume of “on hand inventory”, higher the carrying cost and total cash lay out of the business. Hence the “single most effective approach” to reducing the operating costs of a small business is to reduce the on hand inventory and associated carrying costs.
So, how do we do that?
Inventory management professionals agree that 20% of the inventory items, generally, make up for 80% of the inventory value or cost. Based on this 80/20 rule, a company can significantly reduce the cost of inventory by focusing the cost reduction effort on these 20% large ticket items. These items could be raw material, consumables, maintenance supplies etc. depending on type of the small business we are looking at. Regardless of the kind of business however, the goal is to reduce the quantity/volume of these large ticket items from the company warehouse. The strategy is to push these items back to the suppliers’ warehouse or their manufacturing facility and pull in only the quantity that will be consumed / sold / used up in manufacturing at our business on daily / weekly basis.
This is commonly done in automobile industry and large manufacturing companies by utilizing JIT (just in time) techniques and by initiating “blanket purchase orders” with “staggered” delivery schedules. In retail industry, “SBT” (scan based trade) is the common approach to achieve this goal and distributors often use combination of both with their manufacturers and suppliers to achieve the same results. It is important to understand that the overall objective here is to reach a win – win solution for the inventory reduction and certainly not to achieve the cost reduction goal at the expense of supplier. This is objective achieved by utilizing the approach of “strategic sourcing”.
In strategic sourcing, a company evaluates, selects and utilizes a small number of most capable suppliers. Aggregated demand of raw material or supplies is used as baseline to execute annual contracts to get the lowest price based on economies of scale. Suppliers use the same numbers to order their raw material with “staggered deliveries” from the “mill”, their suppliers or wholesale sources and benefitting from similar economies of scale. Additionally, small business also provides rolling forecasts to the suppliers enabling the suppliers to manufacture only one week to two weeks’ worth of parts or supplies to support JIT or SBT delivery schedules. Sometimes a supplier will use the rolling forecast to “level their build plan” and or fill in a slow day’s shop schedule instead of sending people home. As a result of this approach small business, their supplier (s), the supplier’s suppliers, all work together towards the same goal. In other words, virtually everyone in the entire food chain for that matter, benefits from economies of scale on one hand and reduced inventories on the other hand. I have seen dramatic increase in small businesses’ inventory turns due to this strategy. By the way, higher number of “Inventory Turns” is an indicator of successful inventory management & associated cost reduction efforts. Higher number of inventory turns coupled with favorable payment terms (of Net 45 or 60 days) is a bullet proof strategy for profit maximization. However, a small business needs seasoned procurement professionals on their staff to negotiate favorable price contracts and payment terms.
If a small business is resource constrained then it makes good business sense to retain outside consultant or cost reduction service provider that offers contingency based service. In the final analysis, inventory cost reduction is unquestionably the single most effective cost reduction approach that will yield most benefit with least effort as compared to other cost areas.
Kacee Johnson is the Founder of Blue Ocean Principles and is a regular speaker and commentator at Technology, Business, Accounting, and Legal conferences nationwide focusing on business development, marketing, sales and Cloud technologies. Awarded the CPA Practice Advisor Magazines “Top 40 Under 40” Award in 2012 and 2013, she is recognized as one of the young professionals leading businesses into the future. With a diverse management career marked by a demonstrated ability to create solid business plans, determine product needs, achieve revenue goals, build teams and achieve cross-functional business objectives; Kacee founded BOP with a simple goal in mind: work with people you enjoy and on projects you believe in. A results-driven executive and consultant that builds revenue through growth initiatives and contributes a broad-based perspective to create pragmatic strategies and implementation plans designed for maximum return.
The number one thing an SMB can do to lower operational costs is…
Implement an online bill and pay software program.
It allows the business to get paid up to 3 times faster, reducing A/R aging, eliminates paperwork, and it also saves over 50% of bill approval and payments time. There are many good products on the market including FreshBooks, Bill & Pay, or my favorite Bill.com
Daniel Feiman, MBA, CMC© is the Founder and Managing Director of Build It Backwards, a consulting & training firm based in Redondo Beach, CA. He consults in three areas: Strategy: Planning & Implementation; Finance: Modeling & Analysis; Process: Continuous Process Improvement & Certified Supplier Programs. Mr. Feiman is a nationally recognized leader in these areas. He has published whitepapers, articles, SlideShare presentations (10,000+ views), YouTube videos & books on these subjects. His 3rd book in the Build It Backwards series (THE Book on Business from A to Z: The 260 Answers You Need to Know), was nominated for a Thought Leader of the Year award by the AM&AA & selected as a Finalist for a Global eBook of the Year Award. He earned & has been awarded the CMC© designation by Institute of Management Consultants which is awarded to less than 1% of management consultants.
The #1 way small business owners can reduce operating costs is to…
Take a “make vs. buy” approach.
- Research each line item to determine what costs can be pushed off to outside provides at a more efficient rate.
- Review each line item to see which are unnecessary that can be eliminated.
- Renegotiate every line item with the providers to determine which can be reduced.
- Reengineer your processes to reduce the required input.
Randy Stuppard is an entreprenuer, previous owner of several successful multi-million dollar companies, and the Author of “Business Owner’s Guide to Google+ Local” Learn more about Randy and his work at www.stuppard.com.
The #1 way small business owners can reduce operating costs comes down to…
If the business owner reviews every process and documents it, it becomes apparent where efficiencies can be found, taking care not to focus on efficiency over effectiveness. The documentation process itself there can be found ways to reduce costs.
And if each process is documented, it’s also easier and more efficient for employees to follow them without changing the system. These small changes could produce undesireable results that most times increases tangible and intangible costs. The documentation will also highlight repetitive activities which can now be eliminated, and other activities which can be removed or systemized with software.
The last, and most important result from documentation is the ability to remove the business owner from the business, freeing up their time, and being able to sell the business in the future. If they want.
David Bakke is a Small Business Expert at MoneyCrashers.com, an online guide to financial fitness.
The #1 way a small business can reduce operating costs is to…
Take a look at labor, payroll, and salaries.
You can save by using freelancers as opposed to bringing on full-time help, and you should be researching salary websites such as PayScale so you’re not overpaying for new hires. Make sure your workers receive sufficient training to reduce turnover and an engaged workforce also helps. Delivering timely performance reviews can also have an impact. If you can cross train your current team members in other areas, that’s another way to avoid having to bring on new workers.
Overtime can be eliminated as well with better scheduling and possibly adding in a part-time employee. Making sure that your team has the tools, supplies, and technology to get the job done quickly and efficiently can reduce labor expenses as well.
Marley Majcher is the CEO of The Party Goddess! who has planned events for A-list celebs such as Pierce Brosnan and Sofia Vergara. Now, with more than 20 years of entrepreneurial experience, Marley has grown to become a sought-after expert on issues facing entrepreneurs and small business owners, challenging them to stop being busy, and start focusing on profits. Learn more about Marley and her work at marleymajcher.com.
The most valuable tip I can possibly share to small businesses that will never go out of style is…
Tracking your time.
I don’t care if you track it on a napkin or the latest app — write it all down. Give me one week of data on how someone spends their time and I can nail the health of their business. Need more sales? Look at your time log and allocate more of it to picking up the phone and drilling down on activities that bring in the most revenue at the highest profit margins.
You can get an ROI on your time just as easily as you can on your money. IF you measure it.
Sean Higgins is CFO at ilos Videos, the internet’s simplest video creation and training platform.
My advice to small business owners who want to reduce their operating costs is…
Don’t be afraid to tap into a young talent pool.
You can find incredibly talented interns and junior employees that are hungry to learn more and help your company succeed. They will grow with the business and help you avoid paying significant job market premiums.
David Ehrenberg is the Founder and CEO of Early Growth Financial Services, a financial services firm providing a complete suite of financial services to companies at every stage of the development process. He’s a financial expert and startup mentor, whose passion is helping businesses focus on what they do best.
The best way for a small business to minimize operating costs is to…
Outsource whatever services you can so you save on the biggest contributor to business costs — staffing — while getting the support you need. Specifically, think about outsourcing your day-to-day accounting needs, regulatory compliance, bookkeeping, and taxes.
You should also outsource HR. Whether it’s recruiting, managing personnel issues, handling compensation and benefits, from payroll to employee policies and procedures, HR can take over your entire schedule. And since most business owners are unlikely to have expertise in employment law or payroll tax compliance, managing these in-house can lead to costly mistakes..
While the goal of seeking professionals to manage these areas for you is to better manage your cost structure, doing so will also free you up to focus your efforts on growing your business.
Jennifer Eubanks is a Principal of Eubanks & Company, a public accounting firm specializing in accounting, tax and advisory services for small businesses. Ms. Eubanks has served in both the public accounting sector and internally as a senior manager in Chief Financial Officer roles. In addition to providing traditional accounting, tax, audit and financial management services, Ms. Eubanks work with startups and participates in merger and acquisition activities.
For a company needing to improve profitability very quickly, reducing operating costs is a natural solution though it can be tricky as some reductions can impact the ability of the business to generate revenue. For many small businesses, the most significant operating costs incurred are staff and infrastructure. Reducing infrastructure costs while keeping staff in place to manage daily operations is a smart move. This can be accomplished by…
Moving to a small dedicated office space or a shared space for client/customer facing meetings and staff collaboration, and simultaneously implementing telecommuting for employees. In this manner, employees share space, desks, and resources at the office, and work from home some portion of their work week.
For instance, a small business with 10 employees might have a small office presence with 3 offices and a conference room. If each employee spends 1 day a week at the office, 3 offices are more than enough space to accommodate 10 employees. If each employee spends 2 days per week at the office, configuring one of the offices with two desks provides enough space to accommodate 10 employees. With a little creativity, overhead associated with rent and related costs such as utilities and insurance can be significantly reduced. Working from home is also a favorite perk among employees, and accomplishes improved employee satisfaction – creating a win for everyone.
Once the business grows beyond 10 employees, the employer should investigate co-employment using a professional employer organization or PEO. PEO’s provide small-business employers the cost-reducing leverage of their larger rivals for employee related costs such as workers’ compensation, medical benefits, payroll processing, retirement-plan administration and employee recruitment. Employers retain hire, fire and direct supervision of employee duties without the hassle normally associated with employees and usually for a lower overall cost.
Darin Branch is a Tax Resolution Expert and the CEO and Founder of Whitewood Solutions, a provider of tax resolution support and tax preparation services.
The #1 way small business owners can reduce operating costs to…
Look for experts to outsource work to in your industry, like Whitewood Solutions does for the tax professional of today.
As a CEO, your largest expense by far is your payroll and finding talented people who can go the extra mile as an employee is extremely hard. So, find that entrepreneur minded small business owner and outsource. Most people feel like outsourcing causes you to lose control but it does not…it actually provides more control at a much lower cost.
Think on this for a second…if an employee does not perform then you have to follow certain processes before you can let them go or take it from me…your unemployment tax % will skyrocket. On the other hand, if you hire another owner, not only is their pride much higher as to the quality of their work, but they can be told what to do in any manner that you see fit (within reason, of course) because you are ultimately the customer not the boss. That little shift changes the whole ballgame…and it reduces cost for payroll, taxes, benefits, etc…it is how the country used to operate.
My firm can reduce the expenses of a firm just like mine by over 40% in 30 days….YES…in 30 days I can cut your expenses by 40% if you are currently paying an EA the average salary to work cases for you in our industry. SO, cutting costs is a concern…start by looking at who does what in your business and who can be replaced with dedicated small business owners.
JJ Rosen is the Founder of Atiba, a technology consulting, programming, networking and web development firm located in Nashville, TN.
The number #1 way we have seen amongst our clients to reduce operating expenses is…
Optimizing use of the cloud.
Moving all servers, all backups, and in some cases even all desktops to the cloud, either Amazon or Microsoft quickly pays for itself.
Ashley Feinstein is the Founder of Knowing Your Worth, where she works as a certified money coach. Ashley demystifies the world of personal finance and money for her clients whether they are creating a financial plan, negotiating compensation or paying down student loans. She offers one-on-one coaching, workshops, and a 30 Day Money Cleanse. Ashley and her work have been featured on NBC News, Forbes, Yahoo Finance, DailyWorth, Learnvest, Levo League and GoGirl Finance, among others. Ashley worked in the financial services industry for more than five years: first as an investment banker and more recently in corporate finance.
The #1 way to cut operating costs in a small business is…
Either to look into the biggest costs such as rent, mortgage, employees, etc. and then to also look at the daily costs as these can add up on an annual basis.
I recommend making a list of the largest expenses in your business and then the everyday or very regular expenses and going through them one by one to decide if they are completely necessary, if there is a way to get them for less or if you can eliminate them completely.
Jeff Haydock is the President + CEO of ecoCFO, the only outsourced CFO and strategic adviser working exclusively with energy and environmental businesses.
When cost-cutting time hits a company, the first two items that typically go are marketing and salary expenses. But look closer at your business and you’ll see several savings opportunities. The fact is, most business owners don’t realize their true costs of day-to-day operations. Run a detailed expense report by category and what you discover will surprise you. A few places to look…
- Insurance – When was the last time you shopped around your insurance policies? Has your business changed? Some old policies that you had might no longer be needed, some values can be adjusted, there are a variety of opportunities for savings on insurance costs.
- Utilities – Installing motion sensors and dimmers instantly saves on lighting bills. Installing programmable thermostats has the same impact on heating and cooling costs. Encourage employees to dress warm in cooler months, and relax your dress code in the warmer months (think shorts) so you don’t crank your heat or air conditioning to the max.
- Loan interest – Review outstanding debt. If you have multiple loans for items such as equipment, mortgages or lines of credit, refinancing can save interest. Consolidating the debt at a lower interest rate is a possibility too.
- Work schedule – Consider cutting your salary and labor costs without letting anyone go. You can slash 20% by moving to a four-day work week. This is especially effective in warmer months. After all, how much work really gets done on Fridays during the summer?
Cash also tends to leak from businesses in seemingly insignificant ways, usually due to wasteful spending or careless activities. So the problem begins with behavior.
A few examples of this are lost meeting notebooks, misplaced pens, excessive printing and unnecessary postage. These typically go unquestioned as necessary office expenses. The simple solution is often a little planning ahead.
David Gail is the Business Operations Manager of eZanga.com, a powerful metasearch engine and award-winning digital marketing company.
To cut operating costs, SMB owners should always…
Review and renew supplier contracts.
When renegotiating a contract, they should be sure to work in performance incentives for the supplier, as well as penalties for non-performance. This way, both sides of the contract are incentivized to work to their full potential, or risk losing money.
Ellen Rohr is an Author, Small Business Expert and Owner of Bare Bones Biz, where she teaches business basics to small business owners.
When it comes to the #1 way small businesses can save on operating costs, I have a tough love answer:
Fire the person you KNOW shouldn’t work with you anymore.
So often there is someone (more than one person?) who is taking up space and $$ and is just not a good fit. If a name popped into your head as you read this, that’s the one. Have the conversation. Talk to your legal counsel first, if you are concerned about how to do it. Then, let them go. It doesn’t make someone less of a person for not working with you.. They could go on to bigger and better. Prune the tree and start lean in 2015.
Ian Aronovich is CEO and President of GovernmentAuctions.org, a site that compiles and provides information about government auctions of seized and surplus merchandise from all over the country.
I have two really great tips for business owners who want to cut costs and save some serious cash:
The first is to switch their cell phone plan from their existing provider to PagePlusDirect.
PagePlusDirect.com is a company that sells prepaid phone plans, but uses the Verizon network for service. Compared to Verizon’s standard rates, PagePlusDirect.com’s prices are very competitive. For example, with PagePlusDirect you can get a plan with unlimited talk, unlimited text, and 1 GB of data for just $39.95, while on Verizon, the same plan would cost you about $60. The trade off using PagePlusDirect as opposed to Verizon is that you have to prepay your account monthly. If you don’t mind prepaying for service, you can also use any existing Verizon phone to use their service or you could even buy cheap Android-based phones from them as well.
Another tip I can offer to business owners is to call their ISP and get their rates reduced.
We’ve personally saved a lot of money by calling up our ISP and asking to speak to the cancellation department so we could threaten to cancel our service for other providers offering a cheaper introductory deal. As a result, we were able to get a much cheaper plan. ISPs typically do all they can to try and keep you, so you can often times get a greatly discounted internet service just by voicing your dissatisfaction and threatening to leave, however this will only work if they have competition. We do this roughly every 6 months and we’ve saved a ton of money since.
Kevin Hoult is a Certified Business Adviser in an SBA small business development center at Western Washington University. Learn more about Kevin and his work at www.kevinhoult.com.
The #1 way small business owners can reduce operating costs is…
Make a list, check it twice!
Start by carefully listing your operating expenses then, check your list! Most small businesses are carrying a handful of operating expenses that are utterly unnecessary but fall below the owners threshold of concern. Round up those little cash leaks and put them out of your misery once and for all.
Next, check your list again. This time, search for controllable operating costs and start tracking those expenses. Remember – what gets measured gets managed! Owners tell me that by merely tracking an operating expense, that expense will drop 10% – 15%. Add active management of those controllable costs will reduce operating costs by as much as one third.
Operations consultants have earned good fees with these three steps alone, now you can cut, track and manage your own operating costs and save even more money by not hiring an consultant – good job by you!
Devon Smiley is a Negotiation Coach who works with entrepreneurs to help them build the skills and confidence they need to ask for – and get – what they need for their business. A firm believer that no one is ever too small to negotiate, Devon distills her 10+ years of corporate experience into spot-on analysis and actionable advice for businesses of all sizes. Learn more about Devon and her work at www.devonsmiley.com.
My top tip for small business owners seeking to reduce their operating costs is to…
Take a look at where your operating costs are coming from, and focus on two of them: your largest monthly expenditure, and your longest standing relationship. Shaving even a single percentage point off of the largest one can do wonders for your bottom line, and leveraging your longtime customer status with the other provider can lead to sizeable discounts.
Before picking up the phone – do your research, looking for promotional rates and checking in with a few competitors for quotes. Try opening up your negotiations with “We’ve enjoyed being a customer, but the monthly bill is getting too high. How can we work together to bring it down?” to set a collaborative tone, and get them to work helping you lower your operating costs.
With these successful negotiations under your belt, make it a best practice to review your other expenses and repeat the process to uncover opportunities for further savings.
David Waring is the Co-Founder and Editor of FitSmallBusiness.com a website that provides how to advice for small business owners.
The #1 way that small businesses can reduce operating costs is to…
Outsource/hire freelancers for work that is not core to the business.
The savings go way beyond just the fact that you do not have to pay payroll taxes or offer benefits to independent contractors. Most small businesses do not have full time work for non core tasks. Outsourcing these tasks (book keeping, website maintenance, etc) allows you to pay by the project and to get a specialists who’s primary function is that task. This always beats having an internal “jack of all trades” handle the work not only in terms of the quality of the work but also the overall savings.
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