Business Expenses to Cut

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Most new  businesses will go through stretches where cash gets unexpectedly tight. Maybe you overestimated your early sales growth or one of your expenses went up  significantly. When times get tough, your business needs to find a way to slash discretionary costs and stay afloat.

Cutting costs can have problematic effects though. Slash the wrong costs, and you could lose market share, alienate your employees, or cripple your opportunities for  future growth. Here are a few tips for how to cut costs in the short term without jeopardizing your future.

1. Look for the little luxuries

Most  businesses spend some money here and there that doesn’t help generate revenue.  Look for these costs to eliminate first, whether it’s fancy hotels on business  trips or lunches on the company credit card. It might not be much, but getting  rid of these luxuries can add up.

When  times are good, these luxuries serve a purpose. They help employees (and  yourself) to be more satisfied, motivated, and focused. When cash is tight  though, most employees will understand the need to make these small sacrifices.  They’ll certainly understand it more than a reduction in their salaries or  bonuses.

2. Renegotiate deals

Examine  the long-term contracts you have with suppliers, contractors, and landlords to  see if there’s room to tilt those deals more in your favor. Market conditions  may have shifted to the point where they have no choice but to renegotiate a  lower rate for you.

Obviously,  you need to exercise some caution and common sense with this tactic. Don’t try  to play hardball with a supplier whom you can’t replace, or renegotiate with a  landlord when rents are going up.

Instead,  identify situations where you have the greater leverage. If there are multiple  suppliers or contractors out there offering what you need, you might be able to  strike a new deal that saves you money.

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3. Manage inventory

Purchasing  new inventory, and storing the inventory you already have, can make up a major  portion of your businesses cost structure. Keeping inventory levels low helps  you cut costs and reduce the chances of taking a big loss on unsold inventory.

In a  normal environment, you might want to hold slightly more inventory than you  expect to need so that you can be ready if customer demand is higher than  expected. To cut costs, slash those inventory levels down to the minimum amount  necessary to meet expected demand.

In this  case it may be advisable to see if some suppliers can be flexible and deliver  at a higher frequency. If your supplier agrees to deliver once a week rather  than once every two weeks, you can keep a lower level of inventory on hand,  reducing storage and maintenance costs.

4. Be careful with cutting advertising

Advertising  expense is often the first thing that businesses cut when times get tough. On  the surface, this seems to make sense. Advertising is a discretionary cost, and  if you cut that cost you can potentially survive on the customer base that you  have already built.

In  reality, slashing advertising expenses can be extremely dangerous. If your  competitors are advertising when you aren’t, they can take market share from  you and hurt your competitive position. You have to save costs without  detracting from your ability to bring in new customers at a future date. Some  degree of customer turnover is inevitable for any business and if you’re not  marketing to bring new customers in the door, your sales are almost certainly  going to decline.

This  doesn’t mean that it never makes sense to cut advertising costs. If you have a  relatively stable market position, or limited competition, you will probably be  all right slashing your advertising budget temporarily. Just remember, this  should be a last resort if you cannot find other less productive expenses to  cut.


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