As entrepreneurs continue to navigate the uncertainty of COVID-19, many are focused on increasing sales; however, lowering expenses is equally as important when trying to achieve or maintain profitability. Now is the time to tighten spending and prioritize necessary expenses in order to remain focused on long-term revenue and profit growth. The question is, how exactly do you approach cutting expenses?
The novelty of COVID-19 has encouraged everyone from government agencies and laboratories to families and business owners to reflect and have an action plan in place for such crises; but effective cost-cutting can be a daunting task for entrepreneurs and small business owners, leaving teams overwhelmed with where to start.
Running a small business advisory franchise that helps clients with taxes, payroll, compliance and more, I’ve seen firsthand the challenges today’s small business owners are facing.
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The following tips are meant to help entrepreneurs navigate the uncertain economic climate with simple ways to cut business expenses and allow the opportunity for long-term growth.
Perform an internal self-audit
The best practice is to not just pay attention to expenses around tax season. In fact, tracking expenses year-round can save businesses a lot of money. Perform an internal self-audit to kickstart the cutting process by identifying and ranking items from most essential to non-critical, and run reports on a monthly basis to check in on progress.
This will enable you to analyze your business expenses in plain sight, evaluate expenditures and cross check them against internal priorities to find opportunities to cut costs. You’d be surprised what “unknown” expenses you might come across. I recommend taking a fresh look at expense items that we often take for granted, such as utilities, rent and cost of goods, as well as those that are more obviously controllable, such as payroll, supplies, employee travel, repairs, advertising, etc.
After the self-audit, but before you begin cutting costs, create cash flow projections to identify how much you need to save to survive (let alone thrive) during the current COVID-19 crisis. This will help you make informed decisions so you’re best set up to succeed in the post-pandemic era.
Understand your tax deductions
Businesses incur a lot of necessary expenses in order to stay in business, so it’s important to see what expenses can be used to your advantage in the way of a tax deduction at the end of the year. These deductions vary depending on the industry and must be categorized correctly, but get in the habit of keeping track of all your business expenses, both big and small.
Minimizing your tax bill can be one of the most beneficial ways to improve your business’ bottom line, but this means understanding and maximizing all of your available business deductions to reduce your tax liability.
Re-determine what’s essential
This item is tricky, as the “traditional” workspace will continue to evolve, but for now, a few examples of expense centers to re-assess as business models evolve in the current and post-pandemic eras might include:
- Advertising formats
- Office equipment and software
- Recurring orders for office supplies and break room food, etc.
Think to yourself, how can I operate day-to-day functions as lean as possible?
Shop around, but give existing vendors first dibs
Shopping around is the best way to compare vendor prices if you’re reevaluating, but let your existing vendors in on the action. You may find that they provide you with the most competitive price in order to retain your business. If not, you may be surprised at the deals a new vendor will offer for the transfer of business, especially during this competitive economic climate. Remember, everything is negotiable.
Implement productivity tools
Business owners tend to overlook time as an expense, but time is money. Is there an activity that can be simplified to free you or a team member up for other important tasks?
Look to maximize efficiency by listing and evaluating what may be inefficient ways of accomplishing the tasks at-hand. There are several online solutions that can automate various small business functions at the fraction of the cost. By automating such tasks, your team can utilize that time to improve business productivity.
While times are tough, entrepreneurs can successfully combat COVID-19 by strategically cutting non-essential costs so they can maintain a strong market presence and prepare for the post-pandemic rebound. This is a great time to review your thoughts and concerns with your tax and business advisor.