It is no secret that small businesses have taken a hit since the first COVID-19 case approximately a year ago. It has been reported that 17 percent of small businesses were shuttered within the first three months of the pandemic hitting. And for Black businesses, the numbers are even more staggering, with nearly 41 percent of 1.1 million African American businesses shuttering over same period.
Now, there’s economic hope. With vaccines rolling out, a second potential recovery package and economists projecting slow growth for 2021, what should small businesses focused on as the reemergence from the abyss continues?
The current economy may present challenges to growing your small business, but revenue is just one half of the financial equation. By finding ways to save money, you can protect your profit margins and help your company remain sustainable, even in more difficult times.
From building a budget to renegotiating contracts to earning rebates on your payments, there are multiple strategies for minimizing expenses without significantly impacting your operations. Consider these moves for cutting your small business costs.
Be Sure to Budget
It’s a straightforward bit of advice, but when you’re in the throes of running your business, it’s easy to neglect to budget. If you haven’t already, take some time away from your daily operations to build a budget that will guide your spending and saving over the next year. Estimate how much revenue you expect to earn and examine your current expenses. Then determine the impact of any pending changes on both and build your budget accordingly.
In addition, set aside funds for emergency savings if you can. That way, if you encounter any unexpected financial hits, you’ll have a cushion that protects you from tapping into credit cards or making more dramatic cuts. Establishing a line of credit or increasing insurance policies is also smart.
Reduce Your Real Estate Expenses
There’s a good chance that rent is one of your larger expenses. Looking for ways to reduce this line item, even temporarily, can have a big impact on your margins. In a post-COVID era, many employees are keen to work at home. Explore whether letting go of your office space is possible. You can then rent a smaller space in a coworking facility for employees who want to get out of the house periodically or stay fully remote.
Outsource Labor Where Possible (And When It Makes Sense)
Instead of making more hires, discern what work can be done by freelancers and contractors. In many cases, freelance workers are a better fit for specialized jobs such as marketing, accounting, bookkeeping and social media management.
While you’ll likely pay contractors more per hour than you would an employee, you’ll need them for less than full-time. Also, because they are their own business owners, freelance contractors are not eligible for overtime, insurance and other benefits that make having employees more expensive. Outsourced labor is a good way for businesses to keep labor costs low, and it allows you to baby step into a full-hire in a more cost-effective way.
Be Smart About Payments
Your accounts payable isn’t just the record of expenses and debts for your business; it’s also a place where many companies inadvertently waste money through late fees, not taking advantage of early payment discounts and more. To optimize your AP, and save some money along the way, consider automating your payments to make sure you’re not incurring fees for late payments. Ask your vendors if they provide discounts for making payments early. And use a credit card that provides a rebate or cashback for any spending. Pay the card off in full each month (again, you want to avoid late fees) and you’ll earn money while you’re paying your bills.
Renegotiate Service Fees and Contracts
Review the services and products you’ve purchased, from employee insurance to software subscriptions. Connect with your vendors and service providers annually and ask about how you can reduce the cost.
Also, compare prices with other vendors and rate shop. A new health insurance plan, for example, could save your company hundreds or even thousands of dollars a month. The same goes for subscriptions, cell phone service and broadband. Connect with the provider and ask about rates and potential discounts. In some cases, a phone call or email is enough to make a difference.
It hasn’t been an easy year for many small businesses. Find creative ways to cut expenses while maintaining your product and service. In doing so, you’ll improve your overall efficiency and set yourself up for success going forward.
And take advantages of various events such as the 2021 Small Business Workshop Virtual Series which will be held weekly in May during National Small Business Month.
Editor’s Note: David Girodat is the Regional President at Fifth Third Bank, Eastern Michigan. Co-Author Mark S. Lee is the President & CEO of The LEE Group. Lee hosts “In the Conference Room” Sundays (11 a.m.) on 910am.
The views expressed by the authors are not necessarily those of Fifth Third Bank and are solely the opinions of the authors. This article is for informational purposes only. It does not constitute the rendering of legal, accounting, or other professional services by Fifth Third Bank or any of their subsidiaries or affiliates and are provided without any warranty whatsoever.