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As a small business owner, you know how important it is to maximize profits and minimize expenses—especially in times of economic uncertainty. But cutting costs too aggressively can hinder growth. After all, if you’re too focused on reducing budget lines, it becomes tough to allocate resources toward increasing operations and expanding your reach as an organization.
So how can you cut costs while still positioning yourself for future growth? Here are some tips to help you make smart financial decisions without sacrificing long-term gains.
In 2010, as reported in the Harvard Business Review, researchers analyzed corporate strategy and performance of 4,700 companies before, during, and after the global recessions of 1980, 1990, and 2000. According to their analysis, 17% didn’t survive the recession—these companies went bankrupt or were acquired. About 80% survived but hadn’t regained their pre-recession growth in sales and profits three years after the recession ended. The interesting group was the 9% that didn’t just survive; they thrived, outperforming the competition by at least 10% in sales and profit growth.
What set these companies apart? They weren’t necessarily growth leaders coming into the recession. They didn’t cut costs faster and deeper than their rivals, nor did they invest heavily. Instead, they cut costs mainly by improving efficiency and continuing to invest in marketing, which added substantially to sales and profits post-recession.
Instead of taking a knee-jerk reaction to recession talk and immediately cutting your budget, list the core expenses necessary for your business to function. These include items such as rent, payroll, utilities, materials, and other essential costs that you can’t do without.
Then, look at non-essential expenditures such as events, collateral (business cards, brochures, etc.), non-essential subscriptions, office supplies, travel budgets, team perks, or upgrades to your work environment. While some of these might feel essential, determine how much you can trim from your existing budget without negatively impacting operations or employee morale.
Investigate automation solutions that could help streamline processes and reduce manual labor costs while increasing efficiency across organizational departments.
Automation doesn’t have to mean investing in new technology. Often, companies discover that their current systems offer automation features they’re not using. So look at your current system to identify areas where you can implement automation with minimal disruption to your existing workflows.
Some areas to consider include meeting scheduling, customer relationship management, inventory tracking, etc.
In addition to automating processes, outsourcing or hiring freelancers can be a great way to reduce expenses for your business. For example, delegating certain tasks to third-party contractors can save money on benefits, office space, and equipment.
Outsourcing also gives you greater flexibility because you can scale up or down based on your needs. You only pay for the work you need rather than paying for a full-time or permanent employee. So you can easily adjust your workforce to handle changing demands without hiring or training new employees. This can lead to significant cost savings for your business in the long run.
Outsourcing non-essential tasks also frees up your in-house staff to focus on core business functions. This can increase productivity and efficiency, as employees can focus on what they do best.
Budget can significantly impact employees—even if the budget cuts don’t directly affect them. That’s why it’s critical to prioritize communication with your team.
Open and honest communication can help build trust and credibility. So provide clear and transparent information about the budget cuts, why they’re necessary, and how they will affect the organization.
Often, business leaders hesitate to share information on budget cuts because they’re worried that employees will leave. But rumors and speculation can spread like wildfire when information about budget cuts isn’t shared. This can create uncertainty and distrust among employees, ultimately leading to decreased morale and productivity. Prioritizing communication can help mitigate rumors and alleviate concerns and anxiety.
No matter the size of your business or budget, you don’t have to sacrifice future growth for cost-cutting. Looking at opportunities for streamlining and efficiency gains, measuring results, and using technology to automate mundane tasks can all help you manage costs while keeping up with future plans. If you’re unsure of the financial health of your business, contact NewWay Accounting. We can provide personalized advice to help you invest in yourself and your business today so that you can look forward to a prosperous tomorrow.
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