Cost Control Strategies To Reduce Operating Costs In A Small Business


If you’ve been in business for any length of time, you know it costs money to make money. While business costs can vary wildly depending on your industry, expenses are necessary for any business.

While business expansion might be made possible through obtaining a small business loan, steep business costs can make your bank accounts appear thin and may signify cash flow problems. Therefore, it's always a great idea to keep production costs low, reduce business costs where possible, and maintain a comprehensive grasp on the overall costs required to run your business.

For small business owners considering selling their company, it’s essential to take a detailed look at your operating expenses. As you’re positioning yourself to sell, it’s crucial to eliminate any frivolous costs.

Keep reading to learn how small business owners can implement money-saving strategies to reduce business costs effectively. A little planning and preparation now will ensure you get a favorable deal when you decide it's time to sell your business.


What Are Business Operating Expenses?

As the name implies, business operating expenses are the day-to-day recurring costs required to run your business. These expenses include your monthly rent payment for your office space, payroll, office supplies, business travel expenses, and everything in between.

As the business owner, you must watch your operating expenses closely. This is because the operating costs of your business directly impact your bottom line and will play a massive role in whether your company has a net profit or a loss and positive cash flow during a period.



The Best Ways to Reduce Your Business Expenses

By committing to and training your employees to reduce business costs wherever possible, you’re positioning yourself well as you approach the later stages of business ownership. Here are some easy ways to reduce the operating expenses of your business.

# 1 - Create a Budget

Every business should have a budget. Creating and sticking to a budget can help you reduce expenses. Be sure to include all of your expected expenses, as well as account for any unexpected costs you may incur.

Your budget should be realistic and reviewed frequently, making any needed adjustments along the way. As the financial situation of your small business changes, so should your budget. A budget allows you to examine each spending category and better understand how you spend money and where you can cut business costs.

Some businesses benefit from using a zero-based budget. With zero-based budgeting, you start with zero rather than the previous month's budget. Your budget is then compared to past budgets with current spending needs factored in.

It’s wise to keep your receipts when any expenses are incurred. By filing your receipts, you’re able to create an accurate budget, and your life will be easier at tax time with all of your expenses can be accounted for.


#2 - Eliminate Unnecessary Business Costs

Take an objective look at all goods and services you routinely purchase. Eliminate any expenses that aren't necessary or cost-effective. Examine any services you haven’t used in a couple of months, then seek cheaper alternatives or cancel them altogether. Some services offer incentives or a referral program to offset your cost.

As you know, it’s easy to lose track of unused services, especially when you’ve set them up on auto-pay using your business credit card. So be ruthless and only keep expenses that improve your operating income.

Get in the habit of avoiding impulse purchases and spend money only where necessary. If you find something you think is beneficial, don’t buy it immediately. Instead, think it over and determine if it’s something your business really needs or if it can be delayed, or if you can save money and avoid it altogether. When you take time to think over your purchases, you may decide that you don’t need most of them.


#3 - Go Digital

There are numerous online services available for automating and streamlining small business functions. These platforms can assist in business operations, including accounting, website hosting, marketing communications, payroll, and more.

Implementing technology in your business can promote efficiency, which decreases operating expenses. When selecting areas to digitize, consider your most time-consuming tasks. Automating tasks can free up time you previously spent working and effectively add hours to your week. Focus on implementing technology that creates more free time to the workweek for you and your employees, decreasing your overall operating costs.


#4 - Save Money by Outsourcing

Outsourcing certain operations or time-consuming tasks can be worth its weight in gold to a small business. Frequently, many business owners make the mistake of assuming hiring an outside party will result in spending more money, but delegating specific tasks will save you money in the long run and generate even better results than you could’ve achieved yourself.

For instance, marketing is an area that’s commonly outsourced. Businesses typically don’t have the time to dedicate to a paid advertising campaign. Spending money on hiring an outside marketing professional typically correlates to a return on investment. Rather than an added expense, think of outsourcing certain operations as an investment in your business that will undoubtedly pay dividends over time.


#5 - Find the Best Price

Set up a bidding system for vendors for projects and work. Price shopping or asking a few different vendors to provide estimates pits them against one another and drives prices down, positively impacting your bottom line.

Also, research if any of your vendors offer discounts for paying your invoice early. Some vendors provide savings for early payments; even if it’s only 2-3%, those savings can add up over time. At the very least, be sure to pay your invoices by the due date to save money by avoiding any unnecessary late fees or other penalties.


#6  - Downsize Your Office Space

If your business has a physical building or office space, consider downsizing or going completely virtual. There’s been a massive upswing in people working from home, and many businesses have found that having a physical space isn’t necessary.

Downsizing or altogether forgoing an office space can significantly reduce business costs. For example, allowing your employees to work from home via virtual technology eliminates the rent payments, utility costs, and the fee associated with managing a physical office. Another benefit is that most employees see working remotely as a perk of their job, as it cuts down on their commute times and personal expenses.

If downsizing isn’t an option, consider making your physical space as green as possible. By reducing energy usage, not only will you save money on utility costs, you’ll save on your monthly office supply costs as well. Some green initiatives include replacing regular light bulbs with compact fluorescent lighting, lowering heating and cooling costs by upgrading your insulation and windows, and reducing the amount of paper waste.


#7 - Improve Areas of Inefficiency

By making your business more efficient, you’re able to reduce waste in both materials and time. Strengthening your processes and procedures is an investment in your business.

Set expectations with employees that efficiency is a top priority. Offer incentives to employees for identifying inefficiencies and suggesting solutions. A small reward to an employee could end up saving you thousands of dollars that would otherwise be lost on inefficient business systems.


Improving Your Bottom Line Is Key

As a small business owner, you should always look for ways to reduce business expenses and eliminate unnecessary costs. This is especially true when you're positioning yourself to sell your business. There are many ways to improve your bottom line and save money without sacrificing the quality of your products or services or making your employees have to work harder.

Suppose you've gotten into the habit of merely monitoring your business expenses and not examining them in detail. In that case, it’s time to buckle down and conduct a thorough cost-benefit analysis, especially as you position yourself to obtain financing or sell your company.

Taking a close look at your financial accounts and operating expenses gives you the details you need to see how business costs are impacting the profitability of your business. Once you analyze your operating expenses and reduce your business costs where you can, you'll be able to boost your profits, making your business more attractive to lenders, investors, and for potential buyers.


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