Running a small business often entails managing limited resources and finding ways to optimize costs. By implementing cost-cutting strategies, small businesses can enhance profitability and ensure long-term sustainability. As the economy slows down toward a recession later this year, it’s important for businesses to “trim the fat” and build excess savings reserves without harming their customers’ experience or negatively impacting their growth prospects. That’s not as hard as it sounds. Let’s explore ten effective ways for small businesses to cut costs without compromising quality or customer satisfaction.
1. Review and Renegotiate Supplier Contracts
Regularly evaluating and renegotiating supplier contracts can significantly reduce expenses. Reach out to existing vendors and negotiate better terms, such as volume discounts or extended payment deadlines. Additionally, compare prices and quality from different suppliers to identify cost-saving alternatives.
Here at nVest Advisors, we do this regularly as a small business: we seek opportunities to create win-win situations for our firm and the companies that provide us with software and other services. For example, we might explore the chance to extend the terms of our contracts in exchange for lower rates and always do a cost/benefit analysis for every vendor once the service term is up.
2. Embrace Telecommuting and Remote Work
The rise of technology has enabled many businesses to embrace telecommuting and remote work arrangements. By allowing employees to work from home or utilizing shared office spaces, small businesses can reduce costs associated with office space, utilities, and equipment. Remote work can also enhance productivity and work-life balance for employees.
nVest Advisors moved from our original company home in south Texas to Colorado back in 2017, so we had to adopt technology and remote work and meetings long before the Covid pandemic made it a business necessity. We like to say we knew all about Zoom and Google Meet long before Covid made them “cool”. The world we live in today allows much of our work to be done away from a physical office location, so a company may have the opportunity now to downsize their commercial floor space, which will reduce both rent, utilities, and other overhead, and give employees a better quality of life.
We still have physical office facilities in downtown Colorado Springs, CO, but we’ve taken the time to incorporate technology into every part of our operations so that our clients would never have to drive to our office for their entire experience if they did not choose to.
3. Leverage Technology
We’ve touched on this twice already, but Technology adoption really deserves its own mention. Investing in technology can streamline operations and reduce costs in various areas. Adopt cloud-based software solutions for accounting, project management, and customer relationship management. These tools often require lower upfront costs and eliminate the need for expensive hardware and maintenance. Automation can also minimize manual tasks, improve efficiency, and save time and money.
Literally every aspect of our company operations, from marketing to compliance, and nearly every aspect of our client service model (like paperwork, investment modeling, account transfers, etc.) has incorporated technology. This took a lot of time to work out, but it’s saved us so much more time now that we can grow quickly and actually have more time to spend with you, our client. We’re even starting to incorporate AI into our work wherever it’s feasable.
Technology doesn’t have to dehumanize the client experience – it can be used to handle the daily “behind the scenes” work much more efficiently, so you have time to provide a better, more personable client experience (the ultimate competitive advantage).
4. Outsource Non-Core Functions
Consider outsourcing non-core functions such as payroll processing, IT support, or marketing. Outsourcing allows businesses to access specialized expertise without the need for additional full-time employees. This approach reduces costs associated with salaries, benefits, and training, enabling businesses to focus on their core competencies.
At nVest, nearly all of our support services have been outsourced, and technology has made the world small enough that even a “small” firm like ours can take advantage of the talent pool worldwide. Presently, we have marketing, branding, and operational efficiency teams working for us from India, Pakistan, and the Philippines, giving us extremely talented people at affordable costs. Having our primary operations assistant stationed in the Philippines allows us to work on client service needs literally 24 hours a day: as our “official” office closes each evening, work tasks pick up on the other side of the world. When we resume official operations in the morning, another full day’s work has already been done.
5. Optimize Energy Consumption
Energy costs can significantly impact a small business’s bottom line. Implement energy-efficient measures such as using LED lighting, installing programmable thermostats, and ensuring proper insulation. Encourage employees to turn off lights and electronic devices when not in use. By adopting sustainable practices, businesses can reduce utility bills and demonstrate environmental responsibility. Shutting down or “sleeping” workstations and powering down printers and other equipment not in use help as well.
6. Implement Effective Inventory Management
Inventory management directly affects cash flow and profitability. Analyze sales data, identify slow-moving or obsolete items, and adjust purchasing accordingly. Establish strong relationships with suppliers to negotiate better prices, bulk discounts, or consignment arrangements. Utilize inventory management software to track stock levels, minimize waste, and avoid overstocking. Tight inventory control and regular inventory counts also dramatically help to deter internal theft.
Strictly service firms like ours don’t usually carry much inventory, but even watching the use of office supplies can help prop up even healthy margins.
7. Explore Cooperative Advertising and Collaborations
Collaborating with complementary businesses for cooperative advertising can significantly reduce marketing expenses. Pool resources with other small businesses to create joint marketing campaigns, share mailing lists, or co-host events. Such collaborations expand the reach and reduce the financial burden of individual marketing efforts.
8. Opt for Digital Marketing
Digital marketing offers cost-effective alternatives to traditional advertising channels. Utilize social media platforms, email marketing, and search engine optimization (SEO) to reach a wider audience at a fraction of the cost. Track the performance of digital campaigns to optimize marketing efforts and allocate resources more effectively.
Getting it all to work online is not easy, and even though it is far less expensive than more traditional forms of advertising, it is entirely possible to throw good money away on ineffective online marketing. We’ve discovered that effective marketing cannot be an operational afterthought. Marketing takes careful planning, We’ve discovered we can work with marketing students just getting out of college by offering internships. It’s a great win-win – the cost is minimal and you are giving the students experience and the ability to add to their resume (and creative portfolio).
If your company needs this kind of help, may we recommend finding your next intern at Acadium.
9. Encourage Employee Engagement and Retention
High employee turnover can be costly due to recruitment, training, and lost productivity. Invest in employee engagement programs to boost morale and job satisfaction. Provide opportunities for professional development and create a positive work environment. Engaged and loyal employees are more likely to contribute to the business’s success and reduce recruitment and training expenses.
10. Conduct Regular Cost Reviews
Regularly review all costs and expenses to identify areas for improvement. Analyze financial statements, budgeting, and spending patterns to identify unnecessary expenses or areas where costs can be reduced. Encourage employees to contribute cost-saving ideas and reward innovative suggestions that lead to substantial savings.
If your company has not done this before, or it’s been a while, you may be startled to find out how much the recent run of inflation has bloated your budget. Many subscriptions auto-increase their cost. Especially as we get close to a slow-down in economic activity, only companies that are “lean and mean” will weather what’s coming and be put in a position to take advantage of the change to increase market share.
One area we can help a small business is to review the costs associated with your current company retirement plan and offer a competitive bid to reduce those expenses. 401k and similar plans have become much more cost-friendly over the last few years, and if it’s been more than 2 or 3 years since you’ve done a due diligence review on your company benefits, it’s definitely time. We’ll do the analysis and bid totally free of charge, so there is no reason at all to at least explore what’s out there.
The Bottom Line
In today’s competitive business landscape, small businesses need all the advantages they can get to thrive and grow, especially during times of economic uncertainty during which business boom and bust cycles are common. Cutting costs is a crucial aspect of running a successful small business. By implementing these ten strategies, small businesses can significantly reduce expenses without sacrificing quality or customer satisfaction.
As a small business ourselves, nVest Advisors is deeply committed to helping small businesses and their teams thrive and prosper. From financial planning for both the owners and employees of the business to 3(21) or 3(38) fiduciary management of your SEP IRA, SIMPLE IRA, 401(k), 403(b), HSA, college savings plans, and other benefits options, we strive to be an integral part of your team’s financial well-being.
If your company would like to receive professional planning and investment assistance, a competitive bid from us for your current company retirement plan, or if you need to start a new benefits plan from scratch, we’d love to partner with you. Feel free to schedule a complimentary one-hour due diligence meeting with CEO Jeremy Torgerson, to discuss your needs.