When you start to see the word “recession” in the news, it can be alarming—especially if you’re a small business owner. Dips and spikes in the economy are a normal part of life, though, and the number one thing you can do is to be prepared for fluctuations.
If you’re feeling concerned about diminishing sales or higher costs of doing business in a downturn, these 10 simple strategies can help you cut business expenses, maximize profits, and prepare for a recession. These same strategies are also helpful any time your business needs to focus on reducing costs and improving its bottom line, regardless of the reason.
Table of contents: Cost-cutting strategies
1. Analyze the efficiency of your business
Business efficiency compares the output of products and services versus the input, or cost, required to create that output. If you’re spending $100 to create a product that sells for $10, your efficiency (and profit!) is extremely low. However, if you’re spending $100 to create 10 products that sell for $20 each, your efficiency is high.
Of course, that’s an overly simplified example—your actual business efficiency will depend on multiple factors, including the:
- Cost to produce physical products
- Time and human capital invested in developing a service
- Return on marketing investment
- Cost of energy required to run business operations
- Speed at which clients and customers pay invoices
You can begin to get a better sense of your business efficiency by working with a business analyst. These professionals will help you evaluate inputs, outputs, and establish specific areas in which you can improve efficiency and work on cost reduction. A business analyst can also prepare forecasting reports that will help you plan for the future.
2. Consolidate expenses
When evaluating expenditures, keep an eye out not only for expenses you can eliminate, but also for expenses that can be consolidated. If your company has multiple departments, you may find that:
- Several departments are placing similar orders with the same supplier, but not meeting the threshold to get a bulk discount on materials
- Departments are using different freight companies to ship goods, when using one shipping service could allow you to negotiate lower rates
- Teams tend to schedule trainings and off-sites at different times, instead of syncing their plans to get better pricing
By consolidating expenses like these, you can potentially reduce operational costs and improve business efficiency.
3. Look for cost-saving alternatives
In addition to consolidating office expenses, you can also improve efficiency by looking for cost-saving alternatives to the tools and supplies you currently use.
- If you’ve been purchasing name-brand office supplies, consider switching to a store brand or generic offered by your supplier. These products typically offer the same quality at a lower price.
- Shop around and compare prices between software and service providers. You may be able to find (or negotiate!) a lower rate on bookkeeping software and other apps, phone plans, internet service, insurance, electricity, and credit card processing.
- If your business relies on paper contracts, consider switching to a paperless program like DocuSign or PandaDoc. The cost of licenses for your team may be less than printer, toner, and postage—plus, you’ll save valuable time by speeding up the contract process.
- If your marketing budget is skyrocketing, try moving away from traditional paid media and paid online ads. Instead, focus efforts on organic social media content and word-of-mouth advertising.
4. Optimize your cash flow
In addition to cutting costs, you’ll want to try to speed up or improve the way your business is paid. If your business efficiency analysis showed a long lead time between when you send invoices and when they are paid, you may want to consider:
- Reducing the net terms on each invoice and requiring a faster payment turnaround
- Pitching clients on new contracts that are more financially beneficial to your business
- Instituting (and enforcing!) a late penalty on all overdue payments
- Adjusting your payment collection dates to better align with the cycle on which your business must send money out and pay its own vendors
- Looking for a business credit card that offers a lower interest rate, better payment terms, and increased cash back
You’ll also want to make sure you’re maximizing billable hours. By tracking your team members’ time, you can assess how many hours are billable—and make sure that each hour is being properly billed on invoices.
5. Reduce manual work with automation
Introducing automation into your business process can help you save time and money—and it doesn’t mean you’ll be replacing everyone with a robot! Instead, you can selectively implement automated processes in your business in a way that:
- Reduces manual work, like sending out individual payment reminders to clients
- Batches work in new ways for better efficiency, such as running reports overnight so they’re ready for your team to review in the morning
By doing this, you can reduce the amount of time your team members spend doing “busywork.” They’ll then be free to focus on profit-driving activities and innovation.
6. Eliminate products that don’t sell well
When facing an economic downturn, you may be tempted to offer the widest possible array of products and services in the hope that you’ll capture more clients. When business costs are ballooning, though, it’s typically more effective to take a critical look at—and cut—things that aren’t performing well.
When you eliminate products or services that don’t sell well, you can recoup savings in the form of:
- Fewer marketing costs
- Less time spent managing inventory for low-revenue items
- Reduced production costs
You may also want to eliminate products that sell well but have a low profit margin. Unless these are designated loss leaders that are proven to drive additional high-profit sales in your business, consider removing them from your slate of products.
7. Consider bundling products and services
Bundling products and services together can be another way to cut costs. There are a few ways to create bundles that benefit your business, such as:
- Pairing a popular item with a related, but lower-performing, product that you’d like to get out of your inventory
- Allowing customers to create their own personalized bundles using any products or services that you offer
For customers, the allure of a bundle lies in the discount they receive by pairing two or more products or services together. Bundling will also benefit your business, though, by:
- Allowing you to sell slow-moving items faster
- Reducing the amount of money spent on marketing by promoting one bundle instead of multiple individual products
- Giving you a competitive edge over other businesses that do not offer bundle discounts on similar products or services
8. Put a pause on perks
When business finances really become tight, you may need to put a pause on perks like team lunches and off-site events. While this can be difficult news to convey to your team, let them know that it’s just a short-term change that will allow you to continue business operations during a downturn.
You may also want to consider eliminating or reducing client entertainment and business travel until you have more discretionary income in your business budget.
9. Try going remote
If your business operations are primarily conducted online—and you don’t require a physical office space in which to sell products or services to customers—consider a remote work model. By distributing your operations, you can potentially:
- Lower the cost of hiring new team members who can expand your operations
- More easily engage the services of independent professionals
- Reallocate funds spent on a lease to improving business processes and training
- Expand and improve your team’s benefits, such as health insurance
That said, moving to a distributed model isn’t without its own costs and challenges, including rethinking what workplace culture looks like. You may need to invest in new collaborative software tools, and you’ll also need to rethink how you run your day-to-day operations. What made the most sense in an office may not be the best choice for a distributed team.
10. Look for new sources of funding
When you’ve cut business costs as far as you can, it may be time to seek new sources of funding for your business. This can include:
- Gradual price increases
- Crowdfunding campaigns
- Investment capital
Crowdfunding and venture capital consultants can help you figure out the best strategies to raise money, while grant writers can write high-quality applications that position your company as a great choice to receive funds.
Get professional support from a business analyst
When it comes to cutting business costs, you may need to spend money to save money. And sometimes, the benefits of continuing your operations as they are (such as gaining new business from traveling to or entertaining clients) outweighs the initial cost reductions that you’d see from making changes.
Engaging the services of an experienced business analyst can help you identify what you should and should not cut in order to improve your business efficiency—before a business crisis hits.
You don’t need to enter into a big commitment with a consulting firm to get these benefits, either. By working with a business consultant through Project Catalog™ on Upwork, you can get a specific service or a block of consulting hours for one clear, upfront price. And, if you decide you’d like to work with your new consultant on a regular basis, it’s easy to start an ongoing contract through Upwork as well.
Start improving your company’s efficiency and cutting business costs in a way that makes sense—browse available business consulting services on Project Catalog and reach out to a talented independent professional today.
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