Advice for Small Business Owners to Reduce Operating Expenses Without Harming Revenue or Growth

As a small business owner, you are always looking for ways to cut costs without sacrificing the growth of your business. In today's economy, it's more important than ever to operate lean and efficiently. Reducing operating expenses can be a great way to improve your bottom line, but it's important to do so in a way that doesn't negatively impact your revenue or growth. In this blog post, we will outline some steps you can take to reduce your operating expenses while maintaining your revenue and growth.

Gather Your Expenses

The first step to reducing your operating expenses is to evaluate where your money is going. Bookkeeping software like Quickbooks have number of reports that can be generated easily to provide this information. If you don’t use a bookkeeping software to track your expenses (hint: you should), then get credit card, bank account, and  payment portal statements to ensure that you capture everything. Whatever you do to get the information, don’t guess and don’t rely on memory; accuracy is key. Without fulsome, specific information on what you are spending, you cannot make good decisions.

Categorize Your Expenses

Make a list of all your expenses and sort them into essential and non-essential categories. A good place to start is that essential expenses are “above the line” COGS, but there can be certain operating expenses that are critical. For example, an e-commerce company requires an internet connection, but it is not a utility and therefore an operating expense. The difficulty comes when assessing things that you think are critical to the business, but are actually just preferences, so the key is to be brutally honest with yourself and what the business can afford. For example, your website domain, hosting and CMS platform may be critical expenses to generating revenue, but can you really say the same about the monthly retainer to the third party marketing firm that manages it?  

This exercise can also help if the business runs into a slow period or financial difficulty, as you will know what you actually need in order to keep the lights on.

Negotiate with Vendors

Once you have identified your expenses, it's time to negotiate with your vendors. Reach out to your vendors and see if you can negotiate better rates or payment terms. Vendors are often willing to work with their clients to maintain long-term relationships, especially if you have been a loyal customer. This is especially true of non-critical vendors that know they can be easily replaced with a competitor that offers comparable service at a lower price. For example, in Ontario, it’s not a secret that you can negotiate a better price with your current telecom by threatening to leave to another one; or getting a reduced price from a new telecom by saying that you are unhappy with their competitor. 

Automate Your Processes

Automating your processes can be a great way to reduce your operating expenses. By automating tasks that were previously done manually, you can save time and money. If you have already automated whatever manual processes you can, look to see if you have duplicate or multiple software that is performing the same function across teams. Duplication can occur as a result of many factors, from incompatible softwares, to individual employee preferences, to simply losing track of what software is performing what function. Go through all the software, check for duplication of processes, and also research to see if a critical software has released any new features that makes a non-critical software redundant. 

Outsource Non-Core Functions

Outsourcing non-core functions can also be a great way to reduce your operating expenses. By outsourcing tasks such as bookkeeping, customer service, IT support, and marketing, you can save money on salaries, benefits, and other costs associated with hiring full-time employees. The calculation in determining whether or not to outsource these functions is fairly simple, but no less brutal than categorizing expenses. For a small business, the truth is that third party companies can provide better, more cost efficient service than having one or more full time employees on staff. For example, for many small businesses, bookkeeping is not a full time job so an internal employee assigned that task also needs to perform other duties to justify their cost to the company. 

Conclusion

By implementing these steps, you can create a leaner, more efficient business that can weather economic downturns and position yourself for long-term success. By making these practices part of your ongoing business strategy, you can ensure that your business remains profitable and sustainable. Remember that if you think you could use some objective help in taking these expense reduction steps, JAM Consulting can help. So don't wait, start taking action today to reduce your operating expenses and boost your bottom line!