During challenging times, it's necessary to explore ways to reduce costs and save money in your small business.
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Reduce Costs and Save Money During Challenging Times
In my previous article, “Small Business Success: How to Thrive During Challenging Times,” I discussed three areas that are critical to dealing with challenges in your small business. They are:
- Mindset
- Clarifying the Problem
- Focus on Customers
Whether you're operating on a shoestring budget or you're being extremely careful in the number of expenses you incur, it is important to keep a close eye on your finances.
Reduce Costs
- If you want your business to survive and thrive during difficult times, give razor-sharp focus to determining where you can reduce costs. If this is not an area you excel in, get the help of a business partner, if one exists, or hire a professional.
- Cutting costs cannot exist in a vacuum because if you cut too much, your business may have a hard time recovering. If you cut your costs too little, you won't free up enough cash to keep your business going.
- Start by reducing discretionary costs. These are costs that aren't necessary to run your business. Business lunches are examples of discretionary costs. Next, look at ways you can reduce costs but still achieve the same outcomes.
Because of the pandemic, business travel has been significantly reduced. Technology, Like Zoom or Skype, has now become a vital part of business communication. While it may not be ideal for certain interactions, it’s has many advantages, including saving you time and money for travel. - Office space costs. In the current environment, many business owners are working remotely, and many of those who had staff in their offices now have their teams working remotely.
You may still want to keep a physical office. Discuss with your landlord if he or she would be willing to lower your rent or even create a new lease for you. After all, the landlord may see the wisdom of lowering your rent rather than holding out for a higher rate and end up having an empty office with no income. If he or she is not agreeable to reducing the rent, consider moving to a less expensive building. - Take a close look at your supply chain. Some of your suppliers may be willing to give you discounts. You may even discover that you have been receiving a product on auto-ship that you no longer need and can stop the order, thus saving you money.
- Reducing staffing costs. This is hard for every business owner. Before you layoff your staff, look for ways you can reduce employee hours or compensation. If a reduction in hours or compensation isn't enough, you'll have to reduce your workforce, as painful as that may be for you and your employees.
Manage Cash Flow
- Each month you have cash coming into your business and cash going out of your business. Not having enough incoming cash is one of the biggest reasons small businesses fail.
- Pay very close attention to your cash flow. If you have negative cash flow, you’ll need to make up the difference in the next month. A quick way to evaluate your cash flow:
* At the end of the month, add up your sales.
* Total all purchases that you still must pay for.
* Calculate the difference. - If you find yourself struggling with cash flow, you do have some options:
* You can sell assets to bring in additional cash.
* You can get a working capital line of credit. - As much as possible, stay abreast of your cash flow. Send out invoices in a timely fashion and follow up with customers who fall behind on payments. Pay your own bills on time and try to plan accordingly for purchases.
Meet With an Accountant
- As you work to stabilize and strengthen your business, you would be wise to meet with a certified accountant. An accountant can help you implement money-saving tax strategies. There are a number of specific actions you can take to reduce your tax burden. I do not recommend that you do this without suitable advice from someone who understands the financial implications, as well as compliance with your Federal or country tax system.
- An accountant may be able to help you secure financial assistance from the local, state, or federal government. Because small businesses are good for the economy, many government agencies are willing to provide financial aid for struggling businesses.
- Finally, an accountant can help you think through critical financial decisions. Many business owners struggle to absorb all the financial details about their company. An accountant can crunch all the numbers for you and then provide you with relatively easy-to-digest reports.
Work with a Business Coach
At this point you’re probably wondering how it is, on the one hand, I’m recommending that you reduce costs, and on the other, I’m speaking about working with a Business Coach.
- Working with a business coach, as is working with an Accountant, is an investment in your business. Not an expense. Here’s why. A business coach is important to help you navigate changes in the market.
- Your business coach does not have to know the ins and outs of your particular business. However, she is going to hold you accountable, guide you, and help you overcome any mindset issues that may be holding you back. Your business coach is someone who can push you, challenge you, encourage you to think outside the box, and congratulate you when you succeed.
- You need a business coach who can see through the maze and who isn’t blinded by the industry or the fact that there is “too much competition.” You want a business coach who can keep his or her eye on the prize or the goals for your business. That’s a powerful combination for you.
Navigating the current economic landscape is challenging for many small business owners. Reducing costs and saving money must be a focus.
Because small business owners generally do not have a Board of Directors to give them advice, creating your dynamic support team is essential so that you can get the guidance you need to survive, grow, and thrive in these challenging times.
