Top 8 Tips to Reduce Operating Expenses in Small Businesses

— May 26, 2017

Only a handful of things can match the magnanimous feel of being your own boss. It’s really empowering to launch your own venture. But then, starting a business is one thing and channeling it into a thriving setup is another. Almost every 6 months you will see a new startup blooming up but 90% of startups fail– if not immediately yet surely within the next few years. And among the key reasons behind the disaster, it’s the lack of sufficient capital or absence of proper capital management basics is to be blamed. How you handle your operating expenses play a decisive role in your sustenance in the market.


However, not to worry as the post below lists down the top 8 tips to reduce the operating expense for small businesses.



  1. Strategic & calculative cost control

Your primary task is to spot the key cost centers or the expense areas in your business- such as finance, marketing, administration, production, general, employee benefits and so on. Experts advise calculating monthly business operating expenses for minimum past 6 months to sense the pattern of expense. Try to find out the areas where expenses could be avoided and seek for areas where you can have savings. Ask valid questions, such as:



  • Was there was any abnormally large-scale expense in some areas? Was it justified? If not, try to find out ways to prevent such unwanted expenses further.
  • Could outsourcing save you on some employee wages?
  • Would it be economical to have some part-time workers rather than employing them for full-time?
  • Are the vendor charges too high?


  1. Make a budget plan

You should always proceed with a budget plan on your operating expenses. Make your budget plan based on meticulous calculation of all your expense areas and try to stick to it. The budget will record both your estimated expense and the actual expenses. Then, at the end of each month, you should sit down and check the differences between the budget amount and actual expenses. Now, surely, there would be some differences but lower is the difference, better it is for you.



  1. Think of outsourcing

Outsourcing is on trend for some years now and for all the good reasons. One of the main benefits of outsourcing lays in reduced operating costs for businesses. There are several organizations that handle some of your jobs at a much lesser fee compared to what it takes to maintain full-time employees. Outsourcing will save you from the employee benefits, compensations or incentives which are almost indispensable if you hire full-time employees. Moreover, with outsourcing organizations you will have experts shouldering your jobs which means less chance of monetary waste on employee errors. It’s a smart strategy to invest on outsourcing services till you gather sufficient capital to hire and maintain a full panel of full-time employees.



  1. Be mindful while hiring

While outsourcing is a judicious strategy while you are looking to cut down on operating expenses- you would still need some full-time dedicated employees for your office. Now, unmindful hiring of wrong people costs $ $ $ in terms of unproductive works and sinking sales. Immature, laidback and insincere employees could inflate your budget big deal and hence you have to be really mindful during recruitment. You might not have the initial capital to afford seasoned experts from your trade- but that’s okay. You can expect productivity and commitment from freshers as well. Focus on dedicated, talented, knowledgeable and smart bunch of people. It would be better to settle with those with a great record of a solid internship. A smart team would usually assure less chance of errors and hence less monetary wastage.



  1. Shop around

This is surely one of the most important tips to reduce operating expense of your business. You might be in a rush to start your production as early as possible yet it might cost you big if you don’t shop around and just settle with the first vendor you come across. The rule of the thumb is to take a comparative study on at least 4 potential vendors before you make the final investment on one. The vendors vary in rates and terms and conditions. So, the survey would be handy to fish out the most compatible pricing for you. Don’t hesitate to bargain as most of the vendors expect a bargaining from the customer’s side and usually quote an inflated price in the initial discussion. Use your negotiation skills here to reach a reasonable amount. Also, it won’t harm to take the same comparative study periodically, say after 5 years or so to find out more competitive rates from new yet quality vendors in the market.



  1. Pay invoice early

Do you know there are some vendors who are ready to reward you with a handy discount on early payment? Yes, it’s a good marketing strategy and one of the most calculative tactics for customer retention- but that would be a winning situation for your business as well. So, if possible, try to locate with vendors who offer such facilities and have this mental preparation to clear their invoices before the due date. And yes, be careful of such situations which might force you to delay payment as it might incur penalty fees-which could be a heavy blow on your fiscal sheet.



  1. Save on insurance fees

You can’t say no to business insurance as you can’t compromise on its protection. But you can certainly land up with a lower small business insurance amount if you know the tricks for reduced premium. One such idea would be to locate in your office in a safe neighborhood as crime prone areas always summon higher premiums. Then, implementation of proper risk management practices in office would help as well.



  1. Meet clients virtually

You can also save a good deal by cutting down on travel expenditures- for example, travel costs related to client visits. The smarter way would be to bank on video conferencing facilities and live chat options.


Cutting down operating expenses is no rocket science- you just have to be little wiser, tad smarter and more mindful.

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Author: Amit Sen


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