Profit. It's what business is all about.
Of course, your business may have a grand purpose to support your customer or create a better life for your employees - but without profit, none of your wider goals will ever be sustainable.
From more money in your pocket to business security and being able to serve your customers better - there really are countless reasons why small businesses are always looking to make more profit.
There are two ways you can do this:
Sell more
Spend less
Although smart small businesses will find ways to do both of these, typically it is smarter to cut costs first, before looking to boost sales.
Why?
Because when it costs you less to make each product, then you make more profit each time a product is sold. So, when you increase the number of sales, you are making more profit from each one.
In addition, increasing sales will often depend on many external factors such as market needs and competition. Whereas lowering costs are typically more within the control of the business.
In this guide, we give you 5 ways that your small business can cut costs.
1. Assess Your Software Needs
Software can be expensive. This is especially true when your business needs specialist software. But do you ever question whether you REALLY need that pricey tool?
Auditing your software needs can often highlight much cheaper ways to do something. For example, instead of investing a huge sum in accounting software every month, would a much cheaper invoicing tool and simple spreadsheet do everything you need?
Too often software companies bundle in all sorts of functionality you don't need. Of course, this is great if you are a huge business and you are going to use every tool going. However, smaller businesses usually find themselves paying over the odds for functionality they are never actually going to use.
Try approaching your software supplier to see if you can work out a deal by removing some unused functionality.
TIP: This conversation is likely to go better for you if you go prepared with a list of cheaper or free tools that you could use to do the same job.
2. Business Premises
If one small benefit has come from the recent pandemic, it is that many businesses have realised they don't really need to pay for costly business premises. Before you renew your office/premises contract ask yourself whether you really need the space you are paying for.
Could your team work from home? Could you pay less for a shared office to facilitate hybrid home/office working?
Although not technically cutting costs, you could help reduce your premises rent by subletting to others who have found the need for occasional space - such as freelancers or small start-ups.
TIP: Check whether you are allowed to sublet office space with your landlord before doing so.
3. In-house vs Outsourcing
The question of undertaking business functions in-house vs outsourcing to another business or freelancer is an age-old question. There isn't really a correct answer when it comes to helping you cut costs, as it will depend on your needs and unique circumstances.
For example, when it comes to writing content for your business bringing someone in-house may be more cost-effective if you have considerable content needs and can fill their time. However, if you have smaller content needs, outsourcing to a copywriting agency may help you get more for your money and tap into industry expertise.
Although outsourcing can be more expensive 'per hour' you will typically receive a better, more professional service than you would get in-house for the same overall cost.
4. Equipment Costs
Another area in which you could cut costs is when buying equipment.
Often businesses will invest in unneeded kit because they believe it will help them speed up processes or serve their customers better. However, the first question to ask yourself is whether you really need new equipment or whether you could fulfil that need in some other way.
If you find that buying new equipment really is necessary then consider your options. For example, could you fulfil your needs with a used piece of equipment? Could you rent that equipment for less than it costs to buy? The goal is to achieve the same result whilst spending as little as possible on new kit.
TIP: Use financial planning to identify potential equipment needs ahead of time. This will give you the time you need to explore the various options and their cost rather than having to make and quick and uninformed purchase.
5. Cut General Costs
Bills and general costs can be a silent profit killer for small businesses. This is especially when they are set up for automatic payment.
Regularly checking whether you still need certain services or whether you can get those services cheaper is a good way to ensure you aren't paying more than you need. The exact costs you pay will depend on your business niche, but some common ones which are worth checking include:
Office rent
Office water
Office gas
Office electric
Software subscriptions
Outsourcing (such as booking keeping)
Stationary and office equipment
Tea & coffee
Many costs such as bills will rise over time with little notice. Setting a reminder to check and compare deals at least once a year will ensure that you are always getting the most for your money.
6. Create Strategic Plans
If you’re a business in marketing or other departments, you must create strategic plans to make your work more efficient. It helps you to streamline your work and cut costs on unnecessary aspects.
Additionally, we recommend using data to create an effective strategy. If you hire a business data consultant, you can develop the most cost-effective strategy while helping your company grow.
It’s crucial to create a schedule that covers all aspects, helping you to prevent situations where you have to deal with additional costs.
Cutting Costs for Small Business: Summary
Finding smart ways to cut costs can save your business thousands of pounds over the years. Taking the time to find where your money is going will help you identify where you might be able to save.