Tried And Tested Ways To Reduce Business Expenses

Financial statistics for small businesses have looked ominous for some time now. A study by the Small Business Association reveals that 80% of all startups fail due to weaker cash flow. However, there are ways to stop your company from being another statistic. Keep reading for some valuable guidelines on how to cut business expenses the right way.

Operating Expenses: What Exactly Are They?

This category of expenses refers to the costs of keeping a business running. Some of the common operating costs include:

• Office stock and supplies
• Marketing spend
• Rent and utilities
• Insurance
• Salaries
• Legal fees
• Travel costs

Successful companies keep these costs in the range of 60-80% of their gross income. This figure doesn’t include capital expenditures which are generally expensive one-time purchases. One-time capital expenditures can include equipment bought occasionally for running the above-mentioned operations. Their non-recurring nature excludes them from the tally of operating costs.

When exploring ways to cut down expenses, you have to start by estimating your business’ operating costs. Following these simple steps will help you stay on track:

1. Go back a few months to tabulate all recurring costs involved with running the business
2. Arrange and categorize your outgoing funds under the relevant departments
3. Devise an average formula for variable costs such as salaries for part-time employees
4. Combine these figures to arrive at a monthly average of your operating expenditures

You don’t always need to lower these costs. If your estimated costs are lower than your expected revenue, your company is on solid footing. Otherwise, you’ll need to identify areas where you can reduce business expenses. Using a cash flow projection can put you on the right track by comparing your expected costs with the projected revenue. 

Here’s How You Can Reduce Business Expenses

Sacrificing quantity shouldn’t automatically translate into sacrificing quality. Here’s how to control expenses within a company without hurting brand value and the overall customer experience.

Use Free Forms Of Advertising

Marketing, advertising, and promotional campaigns can account for a big portion of your operating budget. If you’re an established company, standard marketing costs should range between 2-3% of your expenditures. For startups with limited market exposure, this figure should be elevated to 3-5%.

Tracking your spending should help you determine whether your marketing expenditures are in line with the statistics listed above. Moreover, diving into these figures can help you devise new ways of streamlining the budget. Instead of reaching out to multiple platforms and forums with repetitive or sub-standard advertising, choose fewer platforms and free marketing mediums that can deliver greater returns on investment.

Many enterprises have successfully turned to free and more targeted marketing platforms like social media instead of billboards or print media. A robust social media strategy can help your business foster a stronger community cost-effectively while building brand value and generating traffic.

Email marketing is another promising avenue worth exploring when cutting business expenses. According to Campaign Monitor, the costs of email marketing are more than offset by the returns given they deliver an average ROI of $44 per $1 spent. 

Outsource To Those With Expertise

Although the thought of handling everything yourself might sound attractive, it’s far from practical. The time you may invest in completing multiple projects might be spent more effectively pitching clients and driving new business. Various tasks, from administrative to creative, can be transferred to external experts for more efficient and timely management.

Generally, these providers charge a reasonable amount. More importantly, the time they save you can be applied towards growing your business and focusing on the big picture instead of getting drawn into time-consuming tasks that add little to no value. Accordingly, outsourcing is one of the best ways to cut business expenses and expand your reach simultaneously.

When you delegate key roles to outside experts, you can sustain a predictable and consistent budget. This paves the way for overall cost reduction.

Rework Your Office Space

Your office rent may rank among your biggest operating expenses. Still, the standard cost of a rental space shouldn’t exceed 10% of your net income. If you’re paying a price that’s far above this figure, it’s time you rethink your workspace and location. Opting for a more moderately-priced location and a less lavish space is worth considering given how much it’ll help you save. Manuals that talk about how to reduce operating expenses generally begin with reworking offices. 

The idea is to get the job done and if a small space isn’t going to an obstacle for reaching this goal, then it’s the right fit for your business. Additionally, working remotely has suddenly surfaced as a popular option for cutting costs. Co-working spaces can prove to be another affordable option worth exploring. On the other hand, individuals running a sole proprietorship could consider arranging workspaces within their homes.

Utilize High-Tech Solutions

Opting for high-tech operating measures can go a long way towards shrinking expenses. Certain laborious tasks can be easily replaced with automation solutions that are affordable and scalable. Shrinking your employees’ workloads will contribute to reducing avoidable costs.

Electronic invoicing, for example, is an easily-integrated and affordable solution for the time-consuming drills involved with paper-based invoicing. These include tracking and managing receipts, preparing invoices, and estimating overhead costs. This takes a considerable amount of time off your employees’ hands so they can apply it more productively elsewhere.

The Bottom Line

Figuring out how to cut expenses isn’t difficult if you make a point of reviewing your operations regularly. The key is always to keep operating costs lower than gross income. By following this logic of minimizing expenses while maximizing productivity and continually evaluating costs, your business can stay cash flow positive while avoiding common spending pitfalls.