Getting Your Small Business Accounting in Shape: How to Strategically Cut Costs
Discover strategic cost-cutting tips to boost your profitability. Learn how your small business accounting can manage expenses and cut costs the smart way.
Small business accounting can be a real rollercoaster. On the plus side, landing a new client or scoring a loan for new equipment feels amazing. But then, you might discover you’ve overspent on materials, and unexpected repairs or rising costs can quickly put a damper on your budget. It’s a tough balance between celebrating wins and dealing with financial setbacks.
According to the June 2024 NFIB Small Business Index, 21% of owners still cite inflation as their biggest problem. Reported profits were also a net negative during this period because of rising material and labor costs. These are just some of the financial pressures that small business owners face daily.
Strategic cost-cutting can be your lifeline in these situations. It’s important to carefully analyze where you can minimize expenses instead of making hasty decisions (which could make things worse). Smart expense management can help reduce your spending without sacrificing quality.
This article explores practical, efficient ways that will keep your expenses lean. Additionally, you’ll learn how to streamline your processes and boost your bottom line as a result.
Six Ways to Strategically Cut Costs
From reviewing your financial statements to investing in automation, these strategies are designed to build a flexible and proactive cost management system. You can lower expenses without sacrificing opportunities!
- Assess Your Current Expenses
The first step is to understand where your money is going. This ensures you cut costs without disrupting your core operations. By categorizing your expenses, you can identify which ones are optional or can be adjusted for peak/slow seasons.
Here are the different categories to keep in mind:
- Essential Expenses are required for you to run your business. These include payroll, utilities, and raw materials.
- Non-essential Expenses are nice to have but won’t disrupt your operations if you stop them. Examples include office snacks or software subscriptions that you’re not really using.
- Fixed Expenses are almost always the same, such as rent or insurance.
- Variable Expenses change monthly, depending on market conditions or emergencies, such as labor and repairs.
- Streamline Your Operations
Knowing how to optimize your daily operations can save you money (and time) in the long run and keep your client base happy. Here are two ways to achieve this:
- Optimize Schedules: Align your team’s schedules with customer demand. For example, if you notice that Mondays and Fridays tend to have more service calls, schedule more staff for these days. Conversely, scale back during the slower days.
- Leverage Technology: Exploring different financial operations software can help you identify a system that makes things easier for you. For example, expense management software can help you capture receipts in real time so you don’t miss out on those tax credits and deductions.
- Optimize Staffing
Even if you expand your team, you’ll find there are months when you’ll need extra help. To save costs, consider hiring independent contractors during these peak seasons. Here are the benefits:
- These experts will scale up your workforce without the long-term costs.
- You won’t need to spend time and money on training.
- You can increase or decrease their workload depending on customer demand.
Remember to clearly define project or work descriptions so that everyone is on the same page about deliverables and expectations. Also, remember to have those W-9 forms filled out for tax filing!
- Retain Professional Services
Selecting a professional firm to handle your small business accounting can be more cost-effective in the long term than maintaining an accounting department. Here’s why:
- Professional bookkeeping services can provide expertise and efficiency without labor costs.
- These providers can tailor your accounting system based on your pain points and goals.
- These services can automate other aspects of your financial operations, including tax preparation and bill payments, to minimize late payments and fines.
- These providers stay current with industry regulations, best practices, and technologies.
- You can start, stop, scale up, and scale down these services anytime.
Ensure you vet them beforehand to ensure they’re experts in your industry and know how to work with small business owners.
- Negotiate with Suppliers to Reduce Material Costs
Depending on your business, raw materials can be the largest contributor to expenses. It’s important that you regularly review your suppliers’ offers/contracts to see where you can score better deals.
- Leverage Your Reputation: Once you’ve established yourself as a reliable partner, you can use this track record to negotiate better discounts or payment terms. Just like in any business, suppliers are often willing to make good customers happy.
- Shop Around: Review your supplier agreements regularly and compare them with others in the market. Before making a switch, check with your existing suppliers if they’re willing to reconsider their terms based on the information you have.
- Create a Budget and Review Your Financial Performance Against It
Don’t wait until year-end to compare your financial performance against your budget. It’s crucial that you have mid-year checks so you can identify problems early and immediately course-correct.
Here’s how to stay on track:
- Make Sure Your Budget Is Detailed: At the start of the year, ensure that your budget captures all potential income and expenses. Set realistic targets based on previous performance and include specific amounts for labor, materials, and overheads.
- Use Accurate Data to Review Your Finances: Accounting and bookkeeping software can generate accurate reports to check your actual spending against your budget. In addition, if you’ve implemented cost-cutting measures, check how they affect your sales. Adjust your strategies as needed, and repeat the review process.
Decimal Can Help You Cut Costs in the Smart Way
Cutting costs is a serious consideration that requires careful thinking and real-time data. Don’t leave this task to just gut and intuition. Decimal’s bookkeeping services can help you capture your transactions in real time so you can make the right decisions. In addition, our expense management solution can automate spending controls and categorize expenses as they happen.
Schedule a meeting with us to cut costs with confidence.
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