How to cut costs for your SME
Calling all SME captains! Prepare to set sail on a voyage to financial success. Navigate the turbulent waters of business expenses with this guide as your trusty compass. From trimming the sails of utility bills to hoisting the flag of efficient marketing, let's embark on a seafaring adventure to optimize your SME's journey to profitability. In this comprehensive guide, we will explore various strategies and techniques to help you reduce expenses. Let’s dive in and start saving!
The basics of business costs
Before diving into cost-cutting strategies, it's essential to have a clear understanding of the different types of business costs.
Fixed costs: these are expenses that remain the same regardless of your business's level of production or sales. Examples of fixed costs include rent, staff salaries, insurance premiums, property taxes, loan payments, and maintenance costs for equipment. These are essential and need to be carefully managed to ensure profitability.
Variable costs: they, on the other hand, fluctuate based on your business's level of output or sales. Examples of variable costs include raw materials, wages for hourly employees, and transport costs associated with delivering products to customers. By understanding how these costs change as production increases or decreases, you can make informed decisions about pricing your products and services.
Small Changes for Cost Cutting
Now that we have a solid foundation on business costs, let's explore some small changes you can implement to cut costs and improve your bottom line. These changes require minimal effort but can make a significant impact on your business's finances. Please note that some of them will be relevant mostly to companies with physical premises, while others will bring a lot of benefit to all types of SMEs.
Spend less on utilities
Take a closer look at how your business uses utilities such as electricity, water, and heat. Implement energy-saving practices like turning off lights and electronics when not in use, using energy-efficient light bulbs, and investing in energy-efficient appliances and equipment. Additionally, fix any leaks or insulation issues that might be causing wastage. These simple actions can lead to substantial savings over time.
Use supplies efficiently
Review how your business uses supplies and create guidelines to ensure efficient usage. Train your employees to use the right amount of cleaning solutions, paper towels, or any other supplies specific to your business. By reducing waste and optimizing usage, you can save a significant amount on supplies.
Cut back on monthly services
Evaluate your monthly services such as office cleaning, internet, software subscriptions, and phone plans. Determine if there are any services you can reduce or eliminate without impacting your operations. For example, you might consider switching from a weekly office cleaning schedule to a bi-weekly schedule or exploring cheaper alternatives for software subscriptions. One more option is reducing the cost of subscription to back-office services like financial software, invoicing, ensign and even contract creation. To do this, businesses can make use of Enty - all-in one subscription to manage routine business tasks.
Buy refurbished equipment
When purchasing new equipment, consider buying refurbished or gently-used items instead of brand new ones. Refurbished equipment can be just as functional and reliable as new equipment but at a fraction of the cost. Look for specialized suppliers or online platforms that offer quality refurbished goods.
Pay invoices early
Some vendors offer discounts for early payment of invoices. Take advantage of these discounts by paying your invoices promptly. This not only saves you money but also strengthens your relationship with vendors. Enty makes paying and sending invoices a breeze, and the best part - you can even do it without having an account, as there are various methods of payment available.
Reduce travel costs
Evaluate the necessity of business travel and explore alternatives such as video conferencing or online meetings. While face-to-face interactions can be valuable, consider if virtual meetings can achieve the same objectives. By minimizing travel, you can significantly reduce expenses related to transportation, accommodation, and meals.
Be smart about bulk buying
While buying in bulk can often lead to cost savings, it's important to evaluate your actual usage before committing to bulk purchases. Determine if buying smaller amounts might be more cost-effective, especially if you frequently find yourself discarding expired or unused products. Balance the potential savings with the risk of wastage to make informed decisions.
Medium changes for cost cutting
If you're ready to take your cost-cutting efforts to the next level, consider implementing these medium changes. These strategies require more effort and planning but can yield substantial long-term savings.
Try inbound marketing
Traditional advertising methods can be costly. Consider shifting towards inbound marketing strategies that don't require significant financial investments. Create a strong online presence through social media platforms and regularly share valuable content related to your business. Start a blog to establish authority in your industry and nurture customer relationships.
Switch to a line of credit
If you find yourself constantly paying high-interest rates on credit card debt, consider switching to a line of credit. Lines of credit typically offer lower interest rates and can provide you with more flexibility in managing your cash flow. Consult with your bank to explore this option and determine if it aligns with your financial goals.
Find alternative funding
If you need additional funds to fuel your business's growth, consider alternative funding options beyond traditional bank loans. Peer-to-peer lending services and crowdfunding platforms can connect you with potential investors who may offer better rates or payment terms. Additionally, consider approaching friends and family for funding, ensuring clear communication and transparency to avoid potential complications.
Negotiate with vendors
Establish open and honest communication with your vendors and explore opportunities for negotiation. Research competitors' pricing to have a benchmark, share your business's history and expansion plans, and express your goals for cost reduction. Building a collaborative relationship with your vendors can lead to mutually beneficial agreements that lower costs without compromising quality.
Big changes for cost cutting
If you're ready to make significant changes to your business operations, these big changes might be worth considering. While they require more effort and planning, they can have a substantial impact on your business's profitability.
Make your employees happy
Investing in employee satisfaction can lead to increased productivity and reduced turnover, both of which contribute to cost savings. Implement training and development programs to enhance employee skills, organize team-building activities to foster a positive work environment, and offer flexible work arrangements when possible. By prioritizing employee satisfaction, you can create a motivated and efficient workforce.
Switch from employees to contractors
Evaluate your staffing needs and consider whether certain roles can be filled by contractors instead of full-time employees. Hiring contractors can provide flexibility and cost savings, as you only pay for the specific services you need. However, ensure compliance with labor laws and regulations when engaging contractors.
Downsize your office
If you have excess office space, downsizing can lead to substantial savings on rent, utilities, and maintenance costs. Evaluate your current space utilization and consider alternative options such as shared office spaces or remote work arrangements. Downsizing can also foster collaboration and a sense of community among your employees.
Team up with other businesses
Collaborating with other businesses can lead to cost savings through shared resources and joint marketing efforts. Explore partnerships or alliances with complementary businesses to leverage each other's strengths and reduce individual costs. For example, you can share advertising expenses or pool resources for bulk purchasing.
Cut out customers who aren't worth it
Analyze your customer base and identify customers who consistently bring in low revenue or require excessive resources. Consider focusing your efforts on high-value customers who generate more significant returns. By strategically managing your customer portfolio, you can optimize your resources and improve profitability.
Cutting costs for businesses with physical facilities
The task of managing costs becomes harder for businesses with physical facilities. Here are a few more tips to keep in mind when developing a cost cutting strategy for your business when it has more physical facilities than online presence.
Reduce supply expenses
One of the most effective ways to cut costs for physical businesses is by reducing supply expenses. Shop around for affordable office supplies and compare prices from different vendors. Consider purchasing from large discount suppliers like Amazon Business and Walmart, as they often offer competitive prices. By finding cost-effective alternatives for office supplies, you can significantly reduce your expenses.
Optimize production costs
To optimize production costs, explore various ways to make the most out of your resources. Sell or repurpose leftover materials instead of sending them to recycling centers. Consider leasing unused space to another business, allowing you to maximize the efficiency of your production real estate. Additionally, track and measure your operational efficiency to identify areas for improvement and cost reduction.
Evaluate financial accounts
Take a close look at your insurance policies and financial accounts to identify potential areas for cost-cutting. Compare insurance providers to ensure you're getting the most competitive rates. Consolidate insurance policies or bank accounts where possible to streamline your financial management. Evaluate your insurance coverage to avoid over-insuring or duplicating coverage. Lastly, carefully consider the implications of taking on unnecessary debt and analyze the cost-benefit ratio before expanding your business. To have a better understanding of your business financial health, implement software like Enty which helps you visualize and predict future trends.
Optimize marketing efforts
Modernize your marketing efforts to cut costs without sacrificing effectiveness. Build and leverage your customer email list to implement referral programs and email marketing campaigns. Focus on networking and building relationships with your target audience rather than relying solely on traditional advertising. Increase your social media presence and use platforms like Instagram, Facebook, and Twitter to capture new leads and engage with your audience.
Efficient time management
Efficient time management is crucial for cost-cutting. Minimize distractions by using productivity apps and software that help employees stay focused and track their time usage. Set clear expectations for task completion and schedule regular meetings to ensure effective time management. By optimizing time usage, you can increase productivity and reduce costs.
Last thoughts
As a small business owner, it's important to regularly review your business operations and costs to ensure long-term sustainability. Don't be afraid to experiment with different cost-cutting strategies and adapt them to your specific business needs. Remember, every business is unique, so what works for others may not work for you. Stay proactive and open to new ideas to find the most effective ways to cut costs while maintaining the quality of your products or services.
A good rule of thumb is to prioritize cost-cutting strategies that align with your business model and industry, and make use of the newly emerging technology. With a strategic approach to cost management and tools like Enty, you can enhance your profitability and position your SME for sustainable growth.
