What are some easy ways small businesses can cut costs?

There are three types of expenses and each type needs to be managed differently.

Variable costs fluctuate with sales. Commissions paid is an example. Since they more or less stay in line with sales they are the most desirable and are essentially self managing.

Fixed costs are just that - financial commitments that must be paid regardless of sales. Rent and equipment leases are examples. They are the least desireable and should be kept at a minimum. You might be able to renegotiate but generally, once the commitment is made it is difficult to change. Any fixed costs should be considered carefully, discussed with an accountant,and kept to a minimum.

Discretionary expenses have the most flexibility and are the easiest to manage. Purchasing a smart phone or subscribing to a monthly internet service are examples. For these types of expenses you want to look at the ROI. When you need to cut, look here first - postpone unnecessary purchases and start cutting based on the value being providing back to your company.

A few years ago I had written "It's extremely important to balance between benefits and investments and that is only possible when the problem description is very clear." on http://blogs.siliconindia.com/shakti/BOAT_to_MSCW-bid-FIJUC16D27778311.html Since then, I have even more thoughts on this. Perhaps it would also be of value to you. Best! Shakti Saran

Given that it's unlikely that a company can "cut" its way to long-term prosperity, I'm assuming that all other aspects of the business model, i.e accelerating cash collections, pricing, "pruning" customers that are too costly to serve, etc., have been exhausted.

Cost cutting should be viewed strategically. The framework revolves around ranking business functions and their related costs by the overall value they bring to the organization. Then, achieve the cost-reduction target by cutting, or outsourcing, if practicable, the costs related to those functions determined to be of lower priority. This is not an easy exercise, which will appear unfair to some, but, for the sake of the business, this method certainly beats the typical mandated "5% across the board" cuts.

I would add "tracking" and setting priorities. It's amazing how much time is lost during the day on "stuff".

Hire in a firm that focuses upon a variety of P&L items., Total Cost Containment and Total Telecom Consulting being cost containment firm provide clients objective advise with class leading results.

One struggle is that many business owners and management must learn that they can not do it all on their own. At least they can not if the expect to have class leading services and class Leading Budgets. Services provided are on a performance based platform. So if savings or refunds are not achieved there are no fees. These types of service not only provide hard costs savings they also provide Soft dollar savings as well due to your staff not being bogged down with vendors and projects that they are not familiar with.

The shocking part of this is that most businesses feel that they are doing a good job with these P&L items and become complacent.

Rstevens@totaltelecomconsulting.com

Robert, you bring up a good point.

Clients send me a copy of their business P/L (detailed) and I go through it looking for ways to save. Same thing with home P/L. It is amazing what I can find or recommend they do differently.

The p& onel does not tell the entire story. it takes us weeks and even months to get through the discovery, audit and analysis portions of what has to be done. Just copies of contracts can take months to get after jumping through provider hoops. What do you often do when addressing telecom for organizations? Especially multi location and multinational organizations with vast multi carrier mpls networks? Expertise in these areas is critical, and depending upon carrier reps and carrier partners does not provide class leading cost containment as they have their own profitability components that compound the clients final expenses. We are often offered significant commissions from providers that we often request be credited to the client if that vendor is the one selected.

Robert,

The question was in regards to a small business and I find the P/L, details are very helpful. If it appears that a specific area needs additional auditing, then I'd figure out who can assist us next.

At one company I was hired to reduce the expenses of a 100 person department. Once I reviewed our P/L, I choose areas to consentrate my efforts. In one area, I put new systems in place and our expenses in that area went down. I then went back 1 year (the limit I was allowed) and we ended up with 300K in fees that actually were from another department. The system in the entire company was changed.

I used the P/L detail to determine that our supply fees were high. After reviewing six months of bills, and speaking to the Ops Mgr., it was determined that the company had grown to a point where we needed someone coordinating purchasing.

When a company has branch offices, then its benificial to hire others, like an insurance or communications consultant to check those documents. I know a few such consultants whose fee is based on what they help save. Well worth doing.

But you gotta start somewhere.

we're willing to work on a contingency basis if you need specific assistance our general guidance otherwise. Hourly assistance is also available but tends to drive the expenses associated. Feel free to review my profile and catch me on linkedin if you have further interest....

Some quick and easy tips I learned from my own experiences.

Reduce energy costs.
1. Turn off unnecessary lights, computers, appliances, etc when they are not in use.
2. Use low-energy direct task lighting at work stations rather than large overhead lights.
3. Make sure the building you are in is well insulated so you can reduce the need for heating and air conditioning - also set the temperature to 78F during work hours and 85F in off hours.
4. Consider allowing staff to wear weather-appropriate clothing such as shorts and short-sleeved shirts during the summer months or slippers in the cool months.

Office Supplies
Many employees don't consider that when they take pens, note pads and other small, seemingly unimportant items out of the workplace that it is costing the company money to replace them. A friendly email reminder once in a while may be enough to keep this from becoming a costly problem, or you may wish to limit access to supplies in an effort to keep a tighter control on inventory levels.

Overtime
Not only are you paying a staff member more money directly, but you may be paying even more in lost production. Often employees who work a lot of overtime take sick days due to stress or fatigue or their performance is reduced for the same reasons. They may be putting in the hours, but the quality of work may be less than what they are capable of.

Figure out which expenses are most significant. (For example, sort your P&L by dollar and review the top ten or twenty expenses on your list.) Decide what you're getting back from those investments (your roi). Shop out alternatives. Fix what's broken. Dump what doesn't work.

If you sit and think things through, you can usually come up with a metric so that you can determine your return. Advertising, for example, can be a significant expense. There are many ways to track your advertising and the results you get. If you are running ten campaigns and only two of them are bringing in results, what the heck are you doing? You can't allow issues like this to slip, in an economy such as this especially.

Get on board with shareware and free software. I've moved to Google Docs and haven't looked back. 37Signals has freemium software that works well enough for most entrepreneurs too.

Susan

Shareware and Freeware are not intended for business purposes and can open a negative legal door and leave the client with a possible significant data loss. For a solopreneur it may be OK to get away with but use caution. I use Google docs alot as well, but notice that it does not maintain office formatting and this has created some issues for me when wanting to share documents with others in Office Environments. I have found that Office365 is a great solution if "Pure Formatting" is of concern.

Cutting costs has to be taken as a piece of an overall strategy. It depends on where the business is at. If currently in crisis mode than yes, costs need to be trimmed back to improve short term cash flow. Things such as eliminating overtime, shorter work weeks and a roll back on discretionary spending are all areas for immediate impact. Midterm you should be looking strategically at the business and see what is really needed. Can you do with less footprint (closure of facilities or smaller office space), less vehicles and equipment (sell excess) or just less people. These are things you should have been doing over the last two years to be positioned for recovery.

But as others have said, it has to be done with some type of plan in mind and the plan should be focused on how do we grow and expand even in a down market. In my view and experience even in this current state of economic instability there are opportunities for growth and expansion that should be explored. Repurpose some of the costs to open new markets create joint ventures and possibly do a merger to help make the sum of the parts greater than the parts themselves. Even if you are not in apposition to do any of these begin planning for when you are.

Very important; Get people involved. Ask your team on their ideas if where savings can be had while you seek those growth opportunities. You will be surprised that when people know the issues that the company is facing many will rise to the occasion and you have some great thoughts in your own business that may have not been tapped before – go tap it. If still in need of additional help, get outside professional help that can take a nonpartisan and non-emotional look at the business and give you a roadmap to success

Kevin Lombardo
Summit Group Partners
Strategies for Growth, Expansion and Operational Excellence
Denver, Colorado
303.641.8794 Cell
kpl@summitgrouppartners.net
www.summitgrouppartners.net

Your question is a loaded one. I notice a lot of people are just flat out answering this. It would be helpful to learn more about your business before answering the question.

I think that even large businesses are reaping huge benefits, especially in driving costs down with: Outsourcing. This is still a hot debate topic as many are blaming it for loss of jobs, but it doesn't mean you have to go offshore. You can choose between local sourcing or rural sourcing as well. Yes, the rates can be very different when say, you outsource to India, as the cost of living there is not the same as that of the U.S. Whatever you choose, another good thing with outsourcing is you get to hire specialized skills whenever you have a need for it. You may also outsource work to virtual workers in many freelance portals out there. In the end, cost should not be the only driver for you to choose this option, but consider the quality of work produced as well. It takes time to research good service providers, but the effort is well worth it.