Inflation may be squeezing your family budget, but it’s taking a toll on small businesses, as well. According to a 2022 survey from the National Federation of Independent Business, 30% of business owners said inflation was their biggest hurdle. If operating margins are tight, looking for ways to cut expenses should be top of mind. Here are eight ways to potentially rein in your costs.
1. Consolidating debt
If your business is juggling multiple sources of debt, bringing them all together could reduce your monthly expenses. That’s where debt consolidation comes in. It involves taking out a new loan and using those funds to pay off your existing balances. You’ll then have one balance with a single monthly payment that’s ideally less than what you were paying before. If the new loan has a lower interest rate than your previous accounts, all the better.
Loan terms, rates and minimum credit score requirements vary from lender to lender. Keep in mind that while a longer loan term translates to a lower monthly payment, you’ll pay more in interest over the long run.
2. Organizing your expenses
It’s hard to make a plan to cut costs if you don’t know where your business income is going every month. Review your accounts payable and take note of your business’s regular outflow. There may be one-off expenses, like a surprise bill you weren’t expecting. These kinds of costs underscore the importance of having a business emergency fund. A small cushion of cash reserves can help you navigate the unexpected.
Also pay attention to regular operating expenses, from employee wages to utility bills to vendor fees. The goal is to clarify your business spending. You may identify some expenses you can cut right off the bat, like fees for memberships or platforms your business doesn’t really use.
3. Evaluating your insurance policies
Business insurance comes in multiple forms. That includes, but is not limited to, general liability insurance, property insurance and workers’ compensation — and premiums can add up fast. A 2022 Nationwide survey found that 82% of business owners were thinking about reducing their insurance coverage to save money.
As a business owner, your personal risk tolerance will factor into this kind of decision. Opting for less coverage could put your business at risk. If, for example, you decrease your professional liability coverage, what will happen if someone sues you? Meanwhile, cutting back too much on health insurance could impact employee recruitment and retention. With that said, it may be possible to reasonably decrease your coverage (and unlock lower premiums in the process). Think about the types of insurance your business needs and the level of coverage that feels right to you.
4. Negotiating with suppliers
Your business likely depends on other businesses to run efficiently. That can include:
- Phone and internet service providers
- Utility companies
- Office supply companies
- Commercial equipment suppliers
- Inventory providers
Prices can fluctuate from one supplier to the next. Jot down how much you’re paying every month for each service, then compare those numbers to some competitors. Shopping around could snag you better rates. In some cases, a current supplier might match a competitor’s price to keep your business.
Also, if you import some of your materials from outside of the United States, tariffs may be a real expense. The U.S. has comprehensive free trade agreements with 20 different countries; partnering with one of them could reduce or eliminate tariffs.
5. Looking for tax breaks
Some small business owners handle their taxes themselves, but working with a tax professional could save you money over the long haul. A certified public accountant (CPA) can identify ways to reduce your tax burden. That may come in the form of tax credits, deductions and other incentives you aren’t aware of. They should be up to date on current tax laws and can advise you on how to strategize going forward. An accountant can also make sure that your business is in compliance with all government regulations.
6. Making structural changes
When reviewing your business expenses, you might notice a large chunk of money going toward rent and utilities. Some small business owners might consider transitioning away from brick and mortar. Not every business can do this, but it may be something to think about if you can operate online and manage a remote team. Alternatively, you could shop around for a new commercial space.
Structural changes can also be made to your workflow. For example, instead of paying an in-house human resources team or an external marketing agency, you might look for freelance professionals to do that work for you.
7. Finding ways to boost revenue
Boosting sales is always a plus, and a well-thought-out brainstorm session with your marketing team is a great way to strategize new opportunities. That might include plans for:
- Seasonal sales and promotions
- Launching/refreshing your customer loyalty program
- In-person or virtual events
- Revamping your social media strategy
- Investing in content marketing
- Updating your email newsletter
- Responding to industry changes
8. Exploring outside investments
If you’re open to trading equity for capital, taking on an outside investor might make sense. An investor can provide a much-needed cash influx for expansions or new business opportunities, and in exchange, they’ll receive an ownership stake in the company. However, working with an investor may feel strange to business owners who are used to going it alone. Like anything else, weigh the pros and cons to see if it’s the right option for you.
There are lots of ways to cut costs. What matters most is doing so in a way that doesn’t negatively impact your business. Going too lean could cripple your operations — and create more work (and stress) for you and your team.