Cutting Expenses Can Improve Profitability

business growth Nov 09, 2018

It’s often our first reaction as business owners when money is getting tight to make an effort to ramp up sales, but cutting expenses is just as important. At first glance, it may seem that we “need” everything we are currently paying for and can’t save any significant amount of money. A closer look and a brutally honest assessment usually reveal a different story. Here is your challenge, cut your current expenses by 10%, this week. Sound crazy? Well if you are struggling financially like so many other small businesses then crazy might be just what you need.

Cutting Expenses by Cutting Subscriptions

The first area to look at when trying to cut expenses are subscriptions. Just like in your personal life when you sign up for a new gym, go for a few months and then get busy or distracted, there are probably more than a couple of old subscriptions that you can lose in your business expenses, or at least find a cheaper option for. Now we are not suggesting that you get rid of those vital services that help you operate more efficiently, or allow you to provide the best quality to your customer, some expenses are simply necessary. It is important however to look at EACH of these and re-examine your options periodically to see if cost savings are available. IF you have been a customer for a while a call to the vendor might also be a good idea to see what kind of discounts and saving you can get.

Look at Your Office

Cutting expenses that have to do with your office or facilities is the next place to look. Take a hard look at what your business really NEEDS vs. what you currently have. More often than not you are in a space that is too big, too expensive or has a bunch of features that you don’t need or utilize. This will be a much more drastic change, but if you want to save money long term (and you have the cash available for all of the moving expenses) downsizing, downgrading, or losing your office all together will translate to a ton of savings on your expenses.


Another place to look for potential savings on expenses is your payroll costs. This can be a touchy subject because no employer wants to take part in layoffs, but if your business is in serious financial trouble, or heading that way, then cutting expenses in this area may be necessary. Consider that letting go of a few employees now, and giving them the chance to find a better opportunity elsewhere may save the rest of your employees from being let go a year, or six months from now if you run out of cash. One way to determine if you are staffed appropriately is to look at the amount of revenue being generated by each full-time employee.  Each full-time team member should generate 150k-250k in revenue for your business.  This should be your goal. If your revenue per FTE (Full-time equivalent) metric is lower than this range a change might be needed.

Vendors' Costs

Lastly, talk with your vendors to see what savings they can offer you on the materials and supplies that you use most often. If they can’t offer you any discounts or other ways to save, it may be time to shop around for another vendor. You can also save money on materials by finding ways to cut back on use. With any system or process, there is usually some amount of waste. Looking for ways to minimize waste, spoilage, or ineffective use of materials can also save you money.

Likely there are many other areas in your specific industry that you can look to for cost savings. It is vital to your business, especially as you grow, to continue to cutting expenses. If you grow your sales 200% but never cut costs you won’t be any more profitable at the end of the day. You’ll simply have bigger problems to go with your extra sales.

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