Cost Cutting Strategies That Small Businesses Can Use To Stay Profitable
Every small business is under the constant threat of rising costs and diminishing profit margins. If you are a small business owner with monthly payrolls and fixed expenses to way, cutting some corners can help keep the business afloat and also ensure profitability without any unfair means.
What cost problems do small businesses suffer from?
- They have scarce capital that is mostly reserved for setting the business up
- They do not have deep pockets to hire professionals
- They have to curtail operational costs to a bare minimum
Having said that, cost control is a routine process that needs attention. It is not something you plan when your business profitability hits ground bottom.
You don’t have to always wait until recession to deploy some cost cutting strategies. Here are some popular and unpopular ones you can start right away to put some dollars back into your business:
Product lines & Service portfolio
First, begin with trimming your redundant products & services. Any exciting business owner can make the mistake of launching multiple products at the same time. Not all of them might bring back returns proportional to the investment made. Some might need some time before the market matures and becomes profitable for profitable selling.
Perform a portfolio analysis of all the current products and services to know which are the ones that bring back profits. A portfolio analysis also helps spot the products and services that are actually leaking money instead of earning them. You can also compare the results to industrial benchmarks to decide which products or service need more attention to make them profitable.
How can you cut costs if you don’t know where your money is going? A small business needs to stay on top of expenses and have a clear idea of how much is being spent and how much is expected to be spent in the near future. It must have a clear idea of much monthly and quarterly expenses are to be incurred for fixed expenses like rent, power, telephone & Internet, etc. Have an eye for those expenses which shoot high all of a sudden without any relevance to market conditions.
For instance, if your landlord is increasing the office rent abnormally, maybe it is a wise decision to hire packers and movers and get the business a new address so that it stays profitable. You can also use a moving calculator to estimate a tentative amount for the relocation and stay prepared for it. Saves the trouble of a nasty surprise on reaching your new location.
With so many instant messaging, video conferencing and virtual collaboration tools available online, it should not be a problem for your employees to stay connected at all times, well, this brings some cost benefits too.
The C-suite can cut down on flying costs by holding meetings over the Internet. Inter-departments can cut down the use of manual processes and resort to technology and ticketing processes for everyday operations. This would save the time required for staffs to go and fro to get things done which in turn will boost your business performance.
Engage Independent Contractors
In the early stage of operations, no business would ever be comfortable recruiting people in large numbers. But, it cannot do without professional participation either. A nice way to pass through such a phase is by engaging independent contractors who can work for the company on a contractual basis without an employer-employee relationship.
Engaging independent contractors brings some added benefits:
- There is no fixed salary to be paid. Payment is only for the work completed and presented
- They are flexible. You can scale up or scale down your requirements as and when required for the business.
- You can renew or discontinue the process depending on the business needs.
Small businesses need smart allies. Business partners without a financial arrangement. I am referring to the barter system of the old days. You get something in return for providing some value.
Let’s say your business is engaged in website development. You have a need to relocate your office from its present address to another side of the city. Now it is an expensive affair if you are going to pay cash for it. On the other hand, you can volunteer to set up a website for the moving and packing company. If they already have one, you can make it mobile responsive and SEO friendly, or even go on to create a mobile app that helps them with client bookings and delivery management.
These kind of short-term and long-term strategic alliances will not only save costs but will also help you grow your business network which will in turn, establish your brand identity.
Audit your power usage
Do you know how much money organizations burn because they ignore to factor the amount of fuel wastage in their company? From lighting that remains turned on in vacant conference rooms to restrooms that run lights all day long, there are several power outlets within your office that you can control to reduce power bills.
How, you might ask. There are smart motion detecting sensors available in the market today that help halves or even reduce your power bills to a quarter. These sensors turn on and off power by detecting motion in near vicinity thus preventing any unnecessary wastage. The one time cost of these sensors is negligible considering the cost-benefit it will bring in the long-term.
We live in a truly modernized era. Marketing is no longer billboards and flyers. It is all about people, social media graphics and creative public stunts. Innovative marketing strategies like search engine optimization, influencer marketing, social media marketing have zero costs to begin with and achieve almost the same results as paid marketing campaigns.
In a Nutshell
Small businesses need to adopt acute cost cutting to maintain breakeven or to improve profitability. Gaining an upper hand on cost control, that too right in the initial stages of business development will help the business to multiply its efficiency in the long run. The above-mentioned strategies help achieve just that.
Are you a small business owner? Have you adopted any innovative cost control strategy that is putting money back into the business? Let us know.