As a business owner, the challenge of controlling expenses can seem overwhelming. According to a SunTrust survey of small businesses earning between $2 million and $9.9 million annually and midsize businesses earning between $10 million and $150 million annually, 70 percent of midsize business owners feel they aren’t completely prepared to control their company expenses over the next six months. Nearly three-quarters of small business owners said the same.
Experts recommend looking for a mix of long- and short-term measures to cut costs, including these five tactics that business owners often overlook:
1. Automate expense controls and reporting
Despite this technique's positive level of success in managing expenses, only 24 percent of small businesses and 27 percent of midsize businesses Surveyed by SunTrust are taking advantage of it. Automating your company’s expense controls streamlines the process, reducing the cost of operation.
More importantly, it allows you to stay on top of what the business is spending and plan ahead, says Richard Weinberger, PhD, CPA, chief executive officer of the Association of Accredited Small Business Consultants. Rather than waiting months for controls to be completed manually and trying to estimate your budget in the meantime, automation provides results at the click of a button.
2. Match payment terms with your cash cycle
This cost-cutting tactic has a very high level of success for midsize businesses, at 56 percent, but only a quarter are utilizing it, according to the SunTrust survey. Every small and midsize business needs to be aware of its cash flow budget, Weinberger says. Even if you make a sale today, you may not collect on it for three months. Be strategic when setting payment terms, and examine the schedule to see where you can improve the utilization of your cash flow.
If looking ahead suggests that cash flow will be tight, you’ll have time to re-evaluate planned purchases or negotiate some expenses with your suppliers, Weinberger says.
3. Renegotiate contracts with suppliers
Although it’s easy to fall into a routine with your business suppliers, it’s important to constantly assess whether you’re getting the best deal. SunTrust’s survey found that 37 percent of small business owners and 32 percent of midsize business owners have renegotiated contracts to manage company expenses.
“We see [business owners] overlooking this because everyone seems to get in a comfort zone,” Weinberger says. They’ll get to know the particular suppliers or vendors, but prices continue to inch up.
That said, the benefit of a long supplier relationship is that the supplier will be more likely to negotiate new terms. Often, if you’ve laid the groundwork for a working relationship, these vendors are willing to compromise on prices to keep your business, says Rick Meekins, managing partner at Aepiphanni Business Consulting.
4. Evaluate automatic subscriptions
Software and media subscriptions are an overhead cost that many business owners overlook, especially if the subscriptions are on automatic renewal. Meekins says small and midsize business owners need to look at each subscription and ask themselves whether it’s adding value to the business. Without a return, this expense is only taking away from the cash flow.
5. Allow telecommuting
By giving your employees the opportunity to work remotely, you can save money on resources and office space. “That tends to be a pretty significant cost-cutter,” Meekins says. “We just had a client do that, and it just saved probably about $2,000 a month in office space.”
Whether you’ve been taking current budgets and expenses for granted or have let cost cutting lose priority to other business operations, these five steps can help you uncover significant savings. Talk to your bankers to see how they can help your business cut costs today, and in the months and years ahead.