As a business owner, your main objective is to increase your bottom line, or profitability, as much as possible. There are two ways to accomplish this. One is to increase your revenue by selling more. The other is to cut down on expenses. For today’s discussion, let’s look at some of the ways that you can reduce your expenses.
- Eliminate discretionary spending.
This is kind of a “no brainer”, and one that most of us are familiar with in our personal lives. Very simply, eliminate any expenses that aren’t essential to your current business processes, or needed in order to cultivate more business. That new equipment upgrade, more artwork for the office walls, and so on probably aren’t necessary, and can be put off until a later date.
- Renegotiate your lease.
This is not always easy, but in many cases, it can be done. But if real estate prices have been dropping, or if tenants are moving out of your building (or both), the landlord will likely be willing to renew your lease at a lower rate. This may even work if you’re in the middle of a lease. If there are vacancies in the building, and you impress upon the landlord that your business may not survive without a rent reduction, they may be willing to play ball with you.
- Sublet extra space.
If you got into your current lease at a time when you were doing more business, or in anticipation of a growth spurt that never occurred, it may make sense to sublet some of your office or production space. Keep in mind that this can only be done if your lease allows it, and it may require obtaining the landlord’s approval prior to subletting.
- Cut back on extending credit to customers.
Time is money, and letting your customers buy on extended terms can be a significant cost, especially if you’re using your own credit lines while waiting for receivables. The loss is even greater, of course, if the customer fails to pay. Holding back on extending credit is a great way to cut back on costs. If you must grant credit to your customers, be sure to run a credit check on them first, and consider requiring at least a partial payment up front.
- Cut back on payroll.
No one wants to think about layoffs or salary cuts, but when you need to cut down on expenses, it may be necessary. If you need to cut salaries, and you’re also drawing a salary as an employee of the company, be sure to cut your own salary first, even if you’re not drawing a huge salary. This will make a statement to your employees, and draw attention to the fact that it’s a necessary step.
- Outsource work that’s outside of your core competencies.
If you’re looking to cut down on expenses, consider outsourcing work that doesn’t directly relate to your business plan or to your immediate growth. Maintaining in-house staff for tasks like accounting and bookkeeping can be costly, and great savings of both time and money can be achieved by outsourcing the work, as needed, to a “virtual team” who can manage that work remotely and efficiently.