Small Business Tips

How to reduce business operating expenses

MileIQ Team

No business wants to waste money, time, or other valuable resources. Especially during challenging times, you must be on the lookout for ways to reduce business operating expenses in every area or department.

What are operating expenses?

Looking at your business balance sheet and income statements will quickly reveal your revenue and costs, but what are the elements that make up those costs? These are your operating expenses and typically include:

  • Cost of goods sold – what you spent to provide goods and services to your customers
  • Labor – payroll expenses amount to one of your largest operating expenses
  • Sales commissions – if your business includes a team with commissions and other incentives
  • Benefits – health insurance, retirement contributions, etc. – another significant expense
  • Depreciation and amortization
  • Rent or facility payments
  • Building and equipment maintenance

Other operating expenses may not be as significant, but they add up to a considerable cost against your operating income.

How to reduce expenses in your office

Try walking around your office and surveying the business processes in motion. Almost without exception, you will uncover ways to reduce costs quickly.

Printing

How many fax machines, printers, and copiers do you have? Chances are, some are not being used efficiently, or you’re making copies of documents that no one uses or needs. What is the paperwork used for? When the task is complete, what happens to it?

You can probably run your business just as efficiently – or more efficiently – with less printing and fewer copies. Having less hardcopies will save money on paper, printers, supplies, maintenance, and electricity.

Remote workforce

Do your employees need to be in the office? More than ever, companies of all sizes are leveraging technology to allow work-from-home options for at least some employees. Many businesses find that this amounts to improved morale while maintaining productivity levels.  

Communications tools such as Microsoft Teams allow your staff to stay in virtual contact with high-quality audio and video, chat functions, and sharing of documents in real-time. Remote teams offsite can save office space and reduce the need for employee travel expenses. Video conferencing can take the place of costly offsite meetings, saving time and boosting efficiency.

Inventory management

Are you managing your inventory effectively? Excess inventory is costly from several perspectives – taxes, space requirements, and potential waste from spoilage or obsolescence. There are many economical inventory management programs available to help you manage your inventory to save costs in purchasing, storing, and managing inventory levels.

Outsource

Where feasible, utilize contractors or outside suppliers for tasks like bookkeeping or other office routines – especially where the functions are not customer-facing. Outsourcing can free your employees for handling more meaningful tasks such as supporting customers or following up on sales leads.

IT functions are another potential area where outsourcing may be appropriate for your business. Contracting with hosted internet services to create and manage your website and provide business applications can be a significant saving over building your own IT infrastructure and hiring technical expertise.  

Another advantage of contracting for hosted IT services is the use of cloud storage. It minimizes the possibility of lost files or files ending up at unauthorized staff. Saving documents in the cloud makes them secure, while still being accessible to your team from anywhere.

Other functions where you should consider outsourcing:

  • Customer service – help desk services can save you money over hiring internal employees. You can forward problems that need more attention to the relevant in-house teams.
  • HR – services can manage your payroll and benefits processes for you, with fully-trained personnel to handle tax issues and other compliance regulations.
  • Legal matters – hiring internal legal teams can be extremely costly. Outsourcing with competent services that understand your business may be a better – and less expensive – approach.

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Use the internet

When your customers need a product or service, odds are the first place they turn is the internet. Ensure your website provides an accurate representation of your business – goods and services, history, and vision.

  • Social media gives your customers insight into how you do business, provides customer references, and gives potential customers easy access to your business team.
  • Using the internet for connecting with customers and suppliers is a cost-effective way to increase sales while reducing the operating expense of an extensive sales force.

Like other business functions, website development and maintenance is a prime candidate for outsourcing.

Review your expenses and invoices

Many individuals and businesses pay monthly bills without scrutinizing their charges. Be sure that you’re not paying for services or benefits that you’re not using. Some may have been useful in the past, with automatic renewal, even though you no longer need them. Cancel any unused services immediately.

Questioning monthly expenditures also applies to professional memberships and dues that you may pay for yourself or employees. Such activities can be valuable for learning and networking with peers and community leaders, but if you’re no longer taking part in meetings or events, cancel them and save the expense.  

Recession planning for businesses

Recent events in the U.S. have resulted in financial hardships for many companies – particularly small businesses and food services such as restaurants. Most economists agree that this has created at least a short period of recession for the country.

Surviving a recession calls for advanced planning by business owners:

  • Do you have excess labor resources that you will have to furlough in a recession?
  • Are there additional products or services you could offer to make up for lost revenue during business downturns?
  • Are multiple employees doing the same task? It’s great to have double coverage to handle peak business volumes and employee absences, but during a recession, that may be a luxury you cannot afford.

Providing solutions:

  • Consider services or products that may help you fill the gaps in demand for your typical offerings.
  • Include employees in planning for business reductions. They will appreciate openness and honesty in these discussions. Recessions are difficult to navigate for both business owners and employees.
  • Monitor employee performance and solicit input from all parties to identify skills and potential leaders that could help you improve efficiency and work through difficult times.

Your approach to reducing business cost

You must take a strategic approach to your efforts at reducing expenses in your office and throughout your business. For example, outsourcing may be attractive and cost-effective for some business functions. Conversely, losing control of critical business activities such as those that deal with customers could harm your ability to generate revenue.

You should also avoid cutting costs that may affect your ability to provide quality products and services to your customers. Reducing inventory levels too drastically, for example, could result in delays in shipping products to customers. The result could be unhappy customers and even lost sales.

Use caution and business sense when targeting areas for cost reduction. Your results could be significant in streamlining business processes, increasing productivity, and improving your bottom line.  

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