Most small businesses and startups operate on very slim margins. It means that every money-saving strategy can prove to be significantly valuable. It isn’t easy to balance a small business budget, and at times it can feel like you are tightrope walking. Sometimes, even the minutest of changes can result in a major shakeup.
Without appropriate planning, you will find yourself dealing with a significant downturn, resulting in disaster.
There are some common money-saving tactics that business owners regularly follow to keep their spending in check. However, here we will discuss a few not-so-common cost reduction tips in difficult times for entrepreneurs. Whether you are making some changes due to the current economic downturn or planning ahead, these tips can come in handy and help save you some precious dollars:
1. Make Changes in How You Use Your Funds
The COVID-19 crisis has proved to be a catalyst in various aspects of businesses of all shapes and sizes. Look at every expenditure, especially all the recurring costs and determine whether they are necessary. If many of your employees are working from home, you would be saving on many infrastructural expenses. It also means that you would need to cancel, repurpose for pause funds for the tools that are non-essential at the moment. That can prove to be a considerable saving for you.
2. Set Aside a Basic Amount from Your Sales
As mentioned earlier, there are some standard cost-saving measures that most entrepreneurs employ. While some of these are very obvious, others aren’t. Consider setting aside at least 1% of your overall sales in a separate account and keep increasing that percentage incrementally until you begin to feel the heat. When you find your operating budget sinking, you will automatically become more creative with finding ways and means of saving cash.
3. Set aside at least 10% of your annual revenue in the form of cash
It is important for small business owners to work towards having a certain amount of cash in their account at all times. Setting aside 10% of your annual revenue can give you a good cushion. If your business is at greater risk you should be trying to save much more than that. When you have this amount set aside, it will help you stay away from reactive decisions and make more sound ones based on how much you have in your cash reserves.
4. Check your recent tax filings and amend them
This is likely one of the most overlooked strategies when it comes to generating extra savings for small businesses. You should review your most recent tax filings and amend them. If you have an excellent accountant, well versed with the tax code, they would be able to find various deductions you have missed. You might be able to get back a significant amount of money in this manner. It’s a low-cost effort that can provide a higher return.
5. Axe All Office Expenses
Most businesses in Australia aren’t really using their office spaces right now. However, many of the infrastructure-related expenses continue. For example, organisations have standing monthly orders on office supplies and fixed payment arrangements for their internet services, utilities as well as a range of other services which aren’t being entirely used right now. While it might not be possible to cancel many of these, you can attempt to pause the services for a while or get some discounts.
6. Negotiate With Various Vendors
Whenever the economy is in the doldrums, it isn’t just a few people that become impacted. These kinds of situations affect entire business ecosystems. At times such as these, most vendors want to ensure that their cash flow stays stable. You will find that they are more willing to negotiate on pricing with their long-standing customers, and you can benefit from doing so. Reach out to all your vendors; explain to them how the economy has affected your business. It’s likely that they too are sailing in the same boat and will consider the situation. They will work with you to provide a suitable solution.
7. Look at Your Most Substantial Expenses and Calculate the ROI on Them
Take a magnifying glass to all your highest expenses. Once you have all of this put together, calculate roughly what your return on investment for these is. Regardless of what the actual return on investment is, when you ask this question, it helps you become more conscious and aware of your spending. Ultimately, anything that gives you a meager return on investment is something that you need to eliminate or evaluate and make changes accordingly.
8. Aim to Save a Minimum Of 5% Each Month
If you set a rule for saving and set aside at least 5% of your overall monthly revenue each month in your business reserve, you will find that you are more comfortable when it comes to handling a financial crisis. One way to make this happen without fail is to turn it into an automatic process. Once you automate something, you don’t have to reconsider it at any point or remember to do it, and will ultimately get used to it. The 5% is a conservative percentage, and you can set any amount that you like, from your revenue.
9. Find Passive Income Streams
Every business will have various ways in which they can generate income based on their core competencies. In difficult times, passive income can prove to be beneficial for any business. It is why you need to look for various ways in which you can generate some passive streams or supplemental income as it will help you conserve extra cash.
10. Review on Your Annual Premium Renewal Terms
Most businesses have many subscriptions, and now is the time to decide whether they are providing you with a good ROI. These could be your insurance or marketing subscriptions. However, you still need to evaluate the existing strategy, project the industry behaviour for the next couple of years and then make changes accordingly. You can reduce some amount of spend on things like workers compensation insurance, and this can save you some quick cash in the upcoming months.
11. Revisit Your Advertising Strategies
Rather than spending large amounts of money on conventional advertising and marketing channels, consider a marketing strategy that works on more homegrown methods like social media posts, word of mouth, email marketing, blog writing and similar things. This will save you a significant amount of money, not just in the short term but also help you generate leads for the long term. In comparison to traditional ads that expire sometime and stop creating value, opt for these other strategies will prove to be beneficial.
12. Focus on Waste Management
There are a number of ways small business owners tend to waste money. When everything is going well, we don’t really focus on things such as food waste, office supplies, leases of any unused assets and more. At that point, all of these seem like small things and not really something that can impact your profitability. However, no matter what your annual operating expenses annually, even if you save 1% of the waste that happens, things can add up significantly. Always focus on recycling for reusing items as that will help you save real money.
13. Scrutinise Your Balance Sheet
Take a closer look at all your accounts receivables and payables. When you speed up your invoicing and extend payables, it will help you conserve cash. This is just one way of effective cash conservation. Another way to do it is to follow the barter system where you exchange services and goods with no cash in the picture. Some vendors will be happy to transact without cash.
Other Things to Focus On
As a business owner, you may have also invested some amount of money in various initiatives that you think will provide you with a good return of investment at some point. However, you need to rethink these investments as well and put them on pause if necessary. Sometimes in doing so, you might also feel that letting them go permanently might be a good option and that can free-up a large amount of cash in difficult times.
For more information about cost reduction opportunities and efficiencies, contact the experts at Benchmark Cost Solutions at this number – 02 9525 0777. If you prefer, write to us at this email address, and we will revert quickly.
Thanks for reading,
Benchmark Cost Solutions Team
02 9525 0777