Times are getting tough. Finding a way to save money on your business costs has never been more important.
You don’t need to look too far without seeing gloomy predictions and business news about small businesses losing money, or their profit margin down so low, that it’s debatable whether the small business owner should keep trading.
In this Ultimate Guide
We’re going to take you on a whistle-stop tour of all the ways for small businesses to cut costs, achieve cost savings and improve their cash flow.
Let’s dive in.
Claim all Available Business Expenses
If you’re a small business owner in the UK, it’s important to make sure you’re claiming all the expenses you’re entitled to. This can help reduce your costs and improve your bottom line.
Some of the most common expenses that business owners can claim include:
- Vehicle expenses
- Phone and internet bills
- Employee expenses
- Travel expenses
- Rental or lease payments on business premises
For a full list of what you may be able to claim, check out this guide from HMRC.
Free Advice on Business Costs
Understanding business costs matters
There are different types of costs in a business: Fixed, Variable and Capital. Fixed costs stay the same, regardless of what is happening in the business. Variable costs change depending on what is happening in the business. Capital costs are money that is invested in the business and usually has to be paid back over time.
Fixed costs
Fixed costs are the costs a business has to pay every month, no matter how many sales they make. Some examples of fixed costs are rent, salaries, and insurance.
Variable Costs
Some examples of variable costs in a business are the cost of materials used in production, the cost of shipping goods to customers. Variable costs typically rise in line with the sales you are making.
Capital Costs
An example of a capital cost in a business would be the purchase of new equipment or a building. These costs are incurred once and usually result in an increase in the company’s productivity or efficiency. They are often one off costs that are needed for machinery or investment.
Identify ways to cut costs
Write a list of all your costs, broken down into fixed, variable and capital.
Can you negotiate better terms for your fixed costs? Can you get your overhead costs down by engaging different suppliers?
If you need to spend large amounts of capital, can you delay this, or can you secure payment terms that are more amenable for your cash flow?
Find Unnecessary Costs
If you’re looking for ways to cut costs in your small business, one of the best places to start is by identifying any unnecessary expenses.
There are different ways to do this, but some of the most common methods include:
- Analysing your business’ sales and revenue data
- Auditing your expenses
- Running a cost-benefit analysis on each expense
- Reducing staff costs
Let’s take a closer look at each of these methods.
Analysing Sales and Revenue Data
One of the best ways to identify unnecessary costs is by analysing your sales and revenue data. This will give you a clear picture of where your money is being spent, and which areas of your business are generating the most income.
If you see that certain areas of your business are generating more sales than others, but you’re spending more money in those areas, then you may have some unnecessary costs. On the other hand, if you see that an area of your business is generating minimal income, but you’re spending a lot of money in that area, then it’s probably worth looking into cutting costs there.
Auditing Your Expenses
Another way to identify unnecessary expenses is by auditing all of your business’ expenses. This involves taking a close look at every single expense and deciding whether or not it’s necessary.
It can be helpful to break down expenses into fixed, variable and capital costs when doing this. This will make it easier to see which ones can be reduced or eliminated altogether.
Running a Cost-Benefit Analysis
A cost-benefit analysis is another great way to identify unnecessary expenses in your business. This involves weighing up the benefits of an expense against the costs associated with it. If the benefits don’t outweigh the costs, then it’s probably an unnecessary expense.
Reducing Staff Costs
Staff costs can be one of the biggest expenses for small businesses. This is why it’s important to look for ways to reduce these costs without compromising on quality or productivity
There are a number of different ways to do this, including:
- Encouraging employees to take on additional responsibilities
- Offering flexible working hours
- Negotiating lower salaries
- Cutting back on employee benefits
Use A Business Credit Card
When it comes to reducing costs in a small business, a business credit card can be a powerful tool. Here are some of the benefits:
- You can earn points or rewards on all your purchases, which can lead to savings in the long run.
- You can get special deals and discounts on certain products and services.
- You can keep track of your expenses more easily, which can help you stay on budget.
- You can access credit when you need it, which can help you manage cash flow fluctuations.
Understand Operating Costs
Operating costs are the money it takes for a business to run. This includes the cost of things like salaries, rent, and materials. Sometimes businesses can save money by cutting costs in these areas. For example, they might find a cheaper place to rent or hire employees for less money.
Operating Costs = Fixed Costs + Variable Costs
By understanding these costs, you are in a better position to make strategic decisions. You could work out a cost per lead, or a cost per acquisition and then monitor this figure coming down as you focus on reducing expenses.
Monitor Business News
If you keep an eye on business news daily you are likely to come across information about government tax incentives, or local grants that may be available for you.
Monitor national business news daily to stay informed about the overall state of the business world. Also, stay in the loop with local business news. There are frequent opportunities for small business owners to apply for contributions for projects that will save you money.
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Reduce Office Supplies
Small business owners can reduce their office supply costs in order to save money. One way is to purchase supplies in bulk, which will usually get you a discount from the supplier. You can also try to find suppliers who offer lower prices for office supplies that are not commonly used.
Another way to reduce office supply costs is by being mindful of the amount of paper you use. Printing on both sides of a sheet of paper, or using recycled paper, can help you save money in the long run. Additionally, choosing less expensive versions of commonly used office supplies, like pens and pencils, can also help you save money.
Switch to Virtual Technology
A business can cut costs by switching to virtual technology by reducing the amount of office space they need, and eliminating the need for employees to travel for meetings. Additionally, virtual technology can help businesses save money on supplies like paper and ink.
Ask yourself: Is business travel needed for each of those meetings? Could some be done online? Every time you commute to a meeting, there’s the fuel, the wear and tear and there’s likely to be sustenance costs, coffees, snacks etc whilst you’re out.
Make Smart Energy Choices
With the cost of energy becoming such a large percentage of a business’s expenses, monitoring your current usage and being clever about when you use energy all help to cut expenses.
Small changes can make a big difference.
The Right Light Bulbs will Save You Money
Using energy-efficient light bulbs can help your business save money on its electricity costs. This is because these bulbs use less energy than traditional light bulbs, so you will spend less money on electricity overall. Additionally, these bulbs often last longer than traditional light bulbs, so you will not need to replace them as often.
Use Occupancy Sensors
Deploying smart sensors in your office that detect when a room is in use can help turn off lights and heating when it is not needed.
Many organisations don’t achieve the maximum cost reduction available to them as they miss smart energy management.
Add Solar Panels
Take advantage of unused space on your roof and have solar panels fitted. This can be a great way of selling energy back to the grid and can contribute to your cost reduction strategy.
Improve operational efficiency
In order to improve efficiency, a business can conduct an assessment of its current operations. This would help to identify areas where improvements could be made. After this, the business could implement changes in these areas in order to see an increase in efficiency. For example, a business might reorganise its warehouse in order to optimise the flow of inventory, or adopt a new software system that automates tasks such as billing and ordering. By making small changes like these, a business can see a significant increase in operational efficiency.
Review Your Office Space
When it comes to office space, there are a few things that businesses can do in order to save money. One is to consider how much space they actually need. It’s important to make sure that employees have enough room to work, but it’s also important to be realistic about how much space is needed. Too much space can be costly, and it’s not always necessary.
Office Layout
Another way to save money on this front is to think about the layout of the space. Can anything be rearranged or repurposed to create more efficient use of the area? For example, maybe the company could get rid of some of the cubicles and create an open floor plan instead. This would allow for more collaboration and would take up less space.
Many businesses can save money on office space by considering alternative locations. Maybe the company could move to a smaller office or even work from home some of the time. By exploring all of their options, businesses can find the best solution for their needs and save money in the process.
If you have a viable alternative, it might help you negotiate lower rent with your landlord.
Remember Cost Cutting will Help you Save Money
Getting your overall costs down is as much a state of mind as anything else. Create a cost-cutting culture within your team. Offer incentives if a full-time employee can propose ideas that reduce production costs.
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Check contracts for hidden costs
Over time, you’ll likely have built up contracts for a range of services. From traditional vendors such as broadband providers, software services etc, through to niche suppliers that you need.
Review your bills, are the charges always what you’re expecting? If not, are there costs being applied that shouldn’t be there? Remember, every penny counts and don’t be afraid to call out bad practices from suppliers.
Negotiate a better deal
There’s every chance there’s more than one possible supplier for the services you need for your business. Are you taking advantage of this? When times are tight, it’s more than okay to contact your suppliers and ask if they can offer discounts or provide free resources to help with your business.
As a backup, get together with a few of the companies listed that provide equivalent services and benchmark their prices and service so you can discuss this with your incumbent suppliers.
Ensure you charge for all billable hours
When a business is small, it’s easy to get into a trap of over-servicing and undercharging. Start on the right footing with billing. If you offer fixed-price services, be clear with new clients about what will be delivered as part of that scope.
If some services are chargeable, then be clear about what this charge will be, how you will communicate this to the client and when you expect it to be paid.
This tip might fall under tips for how to increase revenue, but if you start with the wrong positions over billing, you’ll have less, not more revenue, and a greater need to cut things later on.
Consider Switching Bank Accounts
The issue with business bank accounts is that they usually start with some sort of sweet deal where there are little or no charges. Over time though, the costs build up. Check yours. Is your bank charging you a monthly fee, or for transactions, or for overdrafts? What do these costs total over a quarter, or a year? Now you know that, is it worth making a change?
Banks know there is friction with changing accounts, from updating suppliers and customers with new details through to the time investment to do it. But if there are hundreds of pounds to be saved, then it’s probably not a bad use of a few hours.
Compare Prices to Reduce Expenses
With price, everything is relative. We only know if something is expensive compared to something else. You don’t really know if you are under or overpaying for something until you know what the wider market charges. And sure, price must be weighed alongside service and expertise, but it’s a great starting point for reviewing and reducing costs.
One tip is to set review dates for contracts with suppliers. Usually, this is good practice a couple of months before a contract is due to end so you can negotiate extensions, or leave for a new supplier from a position of knowledge.
Review Social Media Marketing
We all know we need a social media presence, right? But why do you need to be on social media? And can you be a bit more hard-headed about it?
Typically you’ll be leveraging social media for 2 primary reasons:
- Providing social proof for potential customers who are doing due diligence ahead of doing business with you
- Lead generation (which includes things like brand awareness, gaining followers etc)
The social proof side is actually a little easier – get a content plan in place and have a consistent presence. Lead generation can cost a bit more in terms of time, cost and effort as you may need to spend on advertising or run events.
Work out what you’re trying to achieve, and see if you can calculate and return on investment, and then make your plans accordingly.
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Review traditional Marketing
Traditional marketing can be notoriously hard to measure its return on investments. Cutting costs is about allocating your available resources in a smart way. If you’re spending money on things like direct mail, or print advertising, ask yourself if you have been able to quantify the returns against the capital spent. If you can’t, then perhaps it’s time to put processes in place to do so, or drop these channels in favour of channels that can be evaluated properly.
Tip: If you are using traditional forms of marketing, adding QR codes is a great way of tracking engagement. Once a QR code is scanned, you can measure this. And for direct mail campaigns, you can use unique QR codes for every letter, meaning if it gets scanned, you’ll know exactly which business did so.
Compare online services
There can be a stark difference in the cost for the online services you’ll probably be using. And when you bundle these together there can be savings of hundreds and sometimes thousands of pounds.
Zoom webinar software costs hundreds a year. The comparable solution from Zoho is a fraction of this. Do you need a Microsoft subscription? Or will Google Workspace suffice?
Only you’ll know what’s needed in your business. The trick is to be open-minded to alternatives.
Direct your team focus towards cost cutting
Your full-time staff and other employees focus on the task of getting the bills down. You might be the business owner, but you don’t have the monopoly on good ideas. There may well be options and ideas that are simply not in your line of sight.
Reward staff that provide options that you implement that save money. This could be as simple as reducing printing or travelling less. Be willing to listen to ideas and be prepared to share some of the saved revenue with your team if they are the catalyst behind the idea.
Understand cash flow properly
Business 101 includes understanding your cash flow properly. We’ve written this ultimate guide to it here. In short though if you mismanage your cash flow you could face interest rates on bills, extra costs etc. Equally if you are cash flow positive, then you’ll be able to take advantage of offers & discounts when they arise.
Reduce administrative costs
When it comes to reducing administrative costs, there are a few key things to keep in mind:
Automate where possible
Automating processes can save a lot of time and money. For example, you can use software to automate your bookkeeping or customer relations management (CRM).
Streamline procedures
Streamlining procedures makes them simpler and less time-consuming, which reduces the need for staff to spend time on administrative tasks.
Outsource where appropriate
Outsourcing certain tasks, such as payroll or HR, can be a more cost-effective solution than hiring additional staff.
Negotiate better deals with suppliers
Negotiating better deals with suppliers can help reduce costs across the board. Try to get discounts for paying early or in bulk, for example.
Be mindful of expenses
Every little expense counts, so be mindful of how much you’re spending on things like office supplies and travel. Try to find cheaper alternatives where possible.
Use Careful Planning To Save Money
Do you have a budget in your business? If not, it’s a good idea to get one in place.
Planning what you forecast to spend and then comparing it against what you actually spent is a great way to spot uncontrolled costs quickly and be on top of opportunities early.
The bigger your business, the more important this is.
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Remember increasing revenue matters too
You can cut costs until you are blue in the face, but if you are not generating enough revenue, then eventually your business will fail. That’s a tough message, but it’s the truth.
So keep in mind that when you are cutting costs, yes, you are doing it in order to be able to service other costs in your business such as staff or suppliers, but you’re also aiming to free up cash to spend on growing your business. The two go hand in hand.
Consider coworking space
That’s right, we’ve arrived at 1/5 of the way through the 21st century. Yet there are still legacies for a different century (millennium) of how we work. Whilst we’ve already looked at finding ways to reduce the cost of your office space, perhaps ask yourself more broadly – could you move to co-working space, rather than dedicated office space?
There’s a lot of businesses that value the face to face side of team working alongside remote working, but don’t want to do 100% of either. If you and your team can work remotely some of the time, perhaps all you need is co-working space for the times you are together.
Look for Large Discount Suppliers
What do you buy a lot of? These are typically consumables, such as printer ink, paper etc. If you’ve managed your cash flow properly, you can always explore suppliers that offer bulk purchase discounts.
Reissue the team by buying a tub of coffee big enough to last 6 months and with the money you save get the nice biscuits.
Free Resource to Focus on Profit Earning Activities
When you are trying to reduce costs, a sensible task is to look at how you and your staff are allocating their time. You can do a deep dive with a time & motion analysis, or you can do something less formal by asking the simple question about tasks – ‘is this profit making?’
You might find this question is not as easy to answer as you think. For example, is writing this article profit making? Arguably yes, as it will help drive traffic to the Go Impartial site, but arguably no as there won’t be a direct connection to revenue for a little while.
Some activities should be more clear cut though – admin, bookkeeping, paperwork etc. These tasks might be needed, but they don’t generate revenue. Focus as much of your time on profit making activities as you can.
Review Insurance Policies
The chances are you need public liability insurance for your business. Professional indemnity too. However, the thing about insurance is that the cost can creep up from year to year. When was the last time you looked at the coverage you have, vs the coverage you need. It’s worth assessing what level of insurance you need and seeing if you can save money by changing providers when your contract comes up for review.
Consider outsourcing
I bet you are a specialist at what you do. Whether you provide a product or a service, the chances are, you’re super good at it.
But what about all the bits you have to do to keep your business moving forward? Bookkeeping, payroll, accounts, admin? You’re probably not a specialist at those things.
If your business is big enough, it makes sense to have dedicated people in these roles, but if you have a smaller business, you’re probably doing a lot of things yourself.
It’s often cheaper and more effective to outsource certain functions of your business so you can focus on what you’re good at.
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Evaluate Your Business Plan
A business plan is just that – a guide to the actions you intend to take. It’s not set in stone and if you need to find reductions in your spend, then starting by reviewing your existing strategy and planning is a great place to get going.
Have a Cost Saving Mindset
The most important lesson you should take away from this guide is that there are lots of ways you can make savings in your business. The way to capitalise on these savings opportunities is to have a cost saving mindset.
That means being attuned to when there could be chances to get costs down. You need to think ‘money saving’ when you are looking at suppliers, purchasing decisions and planning etc.
Adopt the lessons in this guide and you’ll free up business funds in no time and be able to focus on growth and long term success.