Last updated: 3.18.2020
When it comes to the economy, your industry, and unexpected global events that can turn everything on its head – it pays to be prepared. But what can you do when there’s no time for being proactive and you need to start making cuts immediately? First, you take a deep breath (because there are solutions). Then, you get down to work.
Below, we’ve provided a recommended framework for cutting costs. Start small. Stay calm. And with these tips, you’ll be leaner and meaner when you need to be the most.
Make multiple small changes rather than one major shift
History shows that companies in need of significant cost cutting typically do better by tweaking multiple small things instead of one extreme cut. Often, the greater the cut, the more disruption. Focus on the smaller things that could collectively have a great impact.
Of course, it may be necessary to make one glaringly obvious, major cut. Every situation is different. You know your business better than anyone else. But just remember, in general, it’s better to do more through multiple minor changes.
How to initiate small-scale cost cutting
Start with available discounts and incentives
Dig Into the Miscellaneous Expenses Category
Hold back on significant pay increases
Reassess all reporting needs
Perform an audit of your time spent in meetings
Dig Into the Miscellaneous Expenses Category
This could lead to major savings. Often employees just throw problem items into the Miscellaneous Expense category without much consideration. Figure out each line item, look at the real numbers, and determine where things can be recategorized in the future for easier tracking.
Hold back on significant pay increases
Try to hold raises to 1 – 2% until you’re in a healthy position. Communicate to employees that you’re trying to cut costs to keep the business running. Don’t scare them, but help them understand it’s the reality of running a small business. Assure them you aren’t giving yourself a raise either.
Reassess all reporting needs
Do a full audit of data and reporting needs to determine if any reports are being run that aren’t being used. This should be done annually, at a minimum, to ensure team efforts continue to be relevant and worthwhile.
Perform an audit of your time spent in meetings
Depending on your team size, you may be sitting in a lot of meetings. While some amount of meeting time is beneficial for decision making and relationship building, you should not be spending most of your time in meetings. Cut or shorten meetings to allow for real working time.Or, convert some of your more regular meetings into stand-up meetings.
How to approach mid-level cost-cutting
Assess job structure & make changes
Look to automation efforts
Digitize if at all possible
Assess job structure & make changes
Depending on the size of your company, this could be small, medium, or large. Do a thorough assessment of your organization’s job structure. Look at the org chart. Read job descriptions and compare them to current employee tasks.
This is the time to restructure your workforce. Reassign job duties to those employees you wish to keep. Create new positions if it feels like a major change is needed. And then do the hard work of terminating any employees not delivering.
Look to automation efforts
In 2020, small businesses must look to technology and software development for savings. Ample time-saving resources exist, and time is money when it comes to running a small business. Learn more about business automation here.
Digitize if at all possible
Do a full analysis of all physical paperwork and office-related documents to identify processes that can be digitized.
What to do if significant cost-cutting is required?
Think About Cutting Business Segments
Outsourcing can be the best and easiest answer
Think About Cutting Business Segments
Nobody likes to cut parts of their small business. But if drastic action is required, you have to consider eliminating underperforming business segments. Work with an outside consultant if needed to identify the weakest areas.
Outsourcing can be the best and easiest answer
Outsourcing is likely the best answer for you. Here are a few areas where small businesses commonly outsource.
Key business functions many small businesses have started to outsource
Payroll
Consider working with an outside firm to process checks, manage payroll taxes, and more. Read our article: Why You Should Be Outsourcing Your Payroll (If You’re Not Already).
Marketing & PR
Consider hiring an outside firm to manage all marketing or creative efforts.This includes any content, copywriting, or design your business requires. If writing or other creative work eats up too much of your time – call in the experts! The time savings will be worth it.
Warehousing
It may be cost-efficient to outsource to a Third Party Logistics Provider (3PL). This could include shipping, inventory counting, order fulfillment, logistics, and more. Read more about this here: Should You Work With a 3PL Company?
