30 Infallible Ways to Reduce Business Expenses

It’s virtually impossible to operate a business without having some overhead.  However, most business owners grapple with the challenge of mitigating unnecessary expenditures on a daily basis. Some cost saving tactics may be specific to your particular industry and operation.  However, many are germane to all business applications.

For as agonizing of a process as it is, the best way to get a handle on expenses is by creating a budget.  If you’re operating an existing business, take out your previous years’ financial statements and extrapolate a list of all accounts payables.  Utilizing the categories of expenses that your account has already figured is a good starting point.  Based on previous years, figure the amount for each account that you feel is realistic for your business.  If you want to reduce expenses, budget the numbers to be lower for now, just to set a benchmark.  You can always increase them in future if the numbers don’t work.  If you’re creating a budget for a startup, you may have to estimate these figures.

For most businesses, there are a few expenses that dwarf the others in terms of the magnitude of impact they have on the company’s budget.  Such expenses include payroll, rent, inventory and utilities.  I’ll address each of these individually along with other expenses that can be analyzed for possible cost reductions.

1.    Reduce Energy Usage

Depending on where your physical location is, your energy bills (electric, oil, gas, etc.) could be higher than others.  However, there is plenty that can be done to reduce the amount of energy that is used at your company.  Contact your utility companies to see about cost saving options such as solar panels, etc.  You also may need to implement certain policies with your employees to turn off equipment after business hours, lowering thermostats, using energy efficient lighting, etc.

2.    Have Some Staff Work from Home

Utilize technology in such a way that allows you to minimize the amount of staff you need at your location.  With the advent of certain technology such as Skype, scanners, cell phones, computers, fax machines, etc., some employees might be able to get just as much done at their home office, rather than taking up space in yours.  There are definitely circumstances where this concept is not applicable but in the cases where it is, it may save the company in more ways than one.  Employees working from home eliminates the need for more space, energy, equipment, supplies, etc.

3.    Pay Invoices Early or On-Time

Every time you pay more for a finance charge or late fee is a waste of money.  Paying on-time is an easy way to reduce costs, even if it’s just minimal.

4.    Reduce Travel

There are undoubtedly going to be circumstances when traveling is unavoidable.  However, with the use of Skype, FaceTime and other forms of video conferencing, many of these trips can be minimized.  There may be many hidden costs associated with travel that are less apparent.  Plain tickets, hotels, gas, vehicle wear and tear, meals, taxi/Uber fare, etc.  Before you or your staff makes travel arrangements, ask yourself if it’s absolutely necessary. 

5.    Cheaper Rent

The money going to your landlord or mortgage company is a big chunk.  Even though location is important, you may need to re-evaluate your lease agreement and see if moving to a different or smaller location could save you money.  Rent that’s too high is a leading cause for new businesses to fail.

6.    Buy Used Equipment and Furniture

Rather than paying extra money for new equipment or office furniture, consider purchasing preowned or refurbished instead.  You also may want to consider the benefits and tax advantages of leasing equipment.

7.    Barter

This may require some creativity but evaluate the relationships you have with your vendors and suppliers to see if there are any ways you can trade products and/or services, rather than paying for them.  Think outside of the box on this one.

8.    Manage Inventory

If the nature of your business involves purchasing and reselling products, the process of doing so must be calculated carefully.  If you purchase too much inventory up front and it takes you too long to sell it, you could be utilizing that capital for operating expenses instead of it just sitting in your warehouse collecting dust.  This could also be very wasteful if you don’t sell some of the products.  Keep only products you need in stock and what you anticipate selling in the near future.

9.    Tax Deductions

Your accountant may need to help you on this one but if your accountant is aggressive, he/she may be able to find ways that you could legally write off certain expenses.  If your accountant is overly conservative, you may want to consider finding a different accountant.

10.  Manage Payroll

Turning off the lights and lowering your thermostat are minuscule expenses in comparison to managing your payroll.  For most companies, payroll is the biggest expense by a long shot.  Only you as the owner can determine where you can trim down in this department. You also may want to consider certain options such as utilizing leased employees, subcontractors, temp agencies, consultants and freelancers.

11.  Analyze Fixed and Variable Expenses

As you know, some expenses will be the same every month while others will change predicated on circumstance.  Focus on reducing or eliminating as many recurring charges and carefully critique variable expenses for their veracity.  Make sure all fluctuations are justifiable. 

12.  Analyze Accounts Payables and Purchases

The importance of reviewing all outbound moneys is because some may be unauthorized.  If you have many employees, you will spot some cases of waste or possibly theft.  Also, don’t underestimate the extent of human error.

13.  Maximize Sales & Marketing

If you are able to factor sales and marketing into your budget, be creative with the amount you spend and make sure your money is being put to good use.  Try to track the conversion rates on your sales efforts to ensure that you’re not wasting money in a particular campaign.  Also consider cobranding to see if you could share the expense with another company that offers complimentary but not competing products and/or services.

14.  Outsource Whenever Possible

Some third-party companies may be more efficient at certain functions than your company is.  Outsourcing these functions could yield tremendous cost savings.  Doing so will reduce your payroll expense and liabilities.  It could also require you to reduce the amount of leased space and insurance that is required to operate your business.

15.  Utilize Unpaid Interns and Apprentices

There are many college students or recent graduates that need experience on their record in order for them to get their foot in the door.  It may take some time to train these individuals but the free labor is invaluable.  You lower your payroll expenses; they get experience…everyone wins.

16.  Ask for Discounts

This may seem too simple but you’d be surprised how many vendors and other companies you do business with value your relationship.  If they suspect that you’re shopping around and could potentially lose you as a client, they may consider dropping their prices as an incentive for you to continue doing business with them.  They could reject you request but it doesn’t hurt to ask.

17.  Pool Purchasing Power

There may be similar companies in your industry that you have a good working relationship with.  If they are purchasing the same materials that you purchase, you may be able to negotiate better pricing if you place larger bulk orders with your suppliers.  Many companies do this successfully as a way to save money.

18.  Shop Around for Insurance

Insurance is no doubt an enormous expense for some businesses.  Don’t count on your broker to get you the best deal.  They may be pushing a certain insurance plan on you just because they get a higher spiff.  Shop around for the best rates.

19.  Find Free Stuff

Why pay for something if you can get it for free?  CraigsList has a huge section for certain items that people are willing to just give away to avoid the hassle of disposing of it themselves.  You can find free office furniture, equipment, computers and many other items for your business this way.

20.  Get Bids

Always try to negotiate terms when you are working with vendors, suppliers and subcontractors.  You may think you’re too busy to go through this process but there isn’t too much that’s more important than saving money.  Don’t go with the first bid because you don’t have time to sift through other offers.  If you don’t have time to get multiple bids, assign the duty to someone else at your company.

21.  Reduce Paper

Take advantage of technology to the best of your ability and try to get your company as paperless as possible.  Some offices go through reams of paper like water.  Paper can get expensive if you’re using it in massive quantities. 

22.  Time Off in Lieu of Raises

Most business owners are continuously hounded by the employees for higher salaries.  As indicated above, managing payroll is one of the most important aspects of keeping costs down.  Consider offering employees paid vacations rather than a pay raise.  Doing so won’t increase your budget but the employee still feels like they’re getting something out of the deal.

23.  Negotiate Lower Credit Card Terms

Whether your bank has extended you a line of credit or you’re using your company credit card as a way to inject working capital into your operation, you may want to consider asking if the interest rates can be lowered.  Banks are tough but crazier things have been accomplished.

24.  Negotiate Lower Prices with Vendors/Suppliers

Let them know that your cost of business has increased and you can’t afford to continue at the same prices or rates that you have in the past.  Some may call your bluff but others will be afraid to lose your business.  All you have to do is ask.

25.  Analyze Recurring Payments

For expenses that repeat month after month, you are basically sharing a percentage of your income with these companies.  These aren’t one-time expenses that occur every once in a while.  These are, in effect, companies that have become silent partners.  Identify all of your recurring payments to see which can be lowered or eliminated.

26.  Check for Unnecessary Expenses

Go over your checkbook stubs and credit card statements with a fine tooth comb. Use a multicolor highlighter if necessary and really gain clarity on where your money is going.  When you take the time to carefully analyze all of your expenses, only then will you have an easier time determining which expenditures are necessary and which are wasteful.

27.  Check Invoices for Overcharging

One of the hardest things in business is to prevent people from unjustly taking your money.  Many companies count on your accounts receivables department to overlook certain charges.  Meticulously review the itemized invoices assuming that somewhere, there are unnecessary charges that should be omitted.  I knew someone who admitted to me that he always included a charge on his invoices for, “Bullcock”.  No one ever asked him what it was because they were probably too embarrassed.  It happens.

28.  Sublet Unused Space

If you have areas at your location that are not being utilized, consider the possibility of renting that space out.  Make sure that your landlord hasn’t included a stipulation in your lease that prevents you from subletting.

29.  Offer Staff Incentives

Your employees won’t think twice about being wasteful at work because it’s not their money they are wasting, it’s yours.  Offering them incentives to cut back or to save where possible will go a long way.  Even if the incentive is small.  Let them put some skin in the game.

30.  Manage Employee Health Benefits

Health and dental insurance can significantly increase your payroll expenses.  Instead of offering your employees full benefits, consider paying for half and making them responsible for contributing to the cost.  Also shop around for the most cost effective plans.  This is time consuming but will pay off in the long run.

For more information on how to reduce operating expenses at your company, call Ashlar Consulting Corporation at 305-849-9399 or visit www.AshlarConsultingCorp.com.

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