How to know where to cut expenses when needed

How to know where to cut expenses when needed

How to know where to cut expenses when needed

Do you want to know how to save money and make your business as profitable as possible? You are not alone, especially after we face a curveball in 2020. Where should you start? Although there are many ways to cut expenses, you need to find the right place to cut expenses for your unique business. This is a guide to help you understand your options in detail and how to get started.

What does it mean to cut expenses?

When you want to reduce business expenses, it means you want to reduce the amount of money spent. For example, if you make $15,000 per month but spend $5,000, you may want to reduce your expenses by $5,000 in order to increase profitability. You can do this by completely cutting things you buy frequently or reducing the amount you pay.

Learn more about how cost cutting and other steps can help you grow your business within your budget.

How to know where to cut expenses when needed

If your business is struggling to make ends meet, or you just want to maximize your profit margins, then auditing your expenses may be a good idea. Here is how to get started.

Priority spending

First, you need to count all expenses. Ask your accountant to send you expense reports for the past 90 days (or call them in your reporting system). Organize your expenses by type (travel, inventory, payroll, bill, etc.). Then, determine which expenses are critical, helpful but not necessary, and good but not necessary.

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Determine who can be negotiated

From there, determine which fees can be negotiated. For example, if you have a business phone plan that your employees need, you can contact your service provider and ask if there are any promotional plan products. You may have more negotiable expenses than you think, such as rent, internet service, merchant account provider fees, supplier prices, insurance premiums, etc.

Cut accordingly

Negotiate as much as possible to reduce all costs. Then, carefully analyze which non-critical expenses you can cut or reduce. Continue to reduce until the target fee amount is reached. If you find that your business finances are vague, check out this resource to easily create a business budget using a free template.

Where can I reduce the cost of my business?

Below you will find some of the best ways to reduce business expenses and money-saving tips.


Finding new employees and getting them onboard can be a time-consuming and expensive process. When it comes to audit costs, many people see recruitment as an area that can be cut. How can you save it? Here are some ideas:

  • Redouble our efforts on the employee referral program
  • Conduct group virtual interviews to save time
  • Implement extensive phone screening
  • Implement prequalification assessment
  • Write compelling job postings
  • Brainstorm how to improve employee retention to reduce recruitment needs
  • Simplify the recruitment process using technologies such as applicant tracking systems
  • Post your position on free platforms such as Indeed, Google for Jobs, Hubstaff Talent and social media platforms (especially LinkedIn)
  • Temporarily stop recruitment

All of these can help you reduce potential high recruitment costs.

Marketing and advertising

If your income does not exceed $5 million, the U.S. Small Business Administration recommends that you spend 7% to 8% of your budget for marketing. You can split these costs between increasing brand awareness and promoting your business through advertising, events, or other marketing activities. Although these expenses are often critical to the success of your business, review your expenses to understand which expenses are effective and which expenses you can cut.

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At a critical juncture, you need to focus on the channels and strategies that provide the best results, while staying away from those that are not. Entrepreneurs put forward some ideas, such as improving customer positioning, reducing active channels, using marketing automation tools, reusing old content, and considering moving to remote teams.

business travel

Although the pandemic may help reduce costs for many businesses, life is returning to normal, which means business travel may pick up again. Paying close attention to these costs must first adopt a cost-saving mentality. Ask if travel is really necessary or if it can be replaced by virtual interaction. If you need to travel, please carefully plan your budget for each trip. Look for opportunities to enjoy travel discounts through business credit cards, establish relationships with preferred suppliers, and consider strict limits on spending.

Team benefits

When it comes to team welfare, be careful not to damage team morale. Many employees may prefer to continue as employees with fewer benefits, rather than becoming former employees who were fired due to company overspending. In difficult times, review the benefits and costs you provide, and analyze which layoffs are the most profitable for the bottom line and have the least negative impact on employees. You may want to ask employees which benefits are most beneficial to them and which are less important.

Existing employees and payroll

Salary is usually the biggest expense of a business, so it is important to consider this when you want to cut costs. Although layoffs should be the last resort, you can consider other ways to reduce costs, such as temporarily reducing working hours, limiting overtime, cross-training employees, using payroll software to automate operations, and making adjustments to optimize retirement plans, health insurance, etc. Benefits and flexible expenditure accounts. You might even want to explore outsourcing tasks and hiring full-time employees (if applicable) and offering salary reductions in exchange for commission-based payment structures.

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Tools and services

Many companies have a list of tools that will increase their annual or monthly expenses. When cutting costs, you need to look at all the tools and services currently in use to analyze whether they provide the highest return on investment. In some cases, you can unsubscribe a tool that does not provide value or replace it with a more effective tool. For example, according to the American Payroll Association, payroll automation software can help companies reduce payroll costs by as much as 80%. Make sure you have the tools you need, and cancel tools that are no longer serving you.

What is the biggest cost of an enterprise?

In most cases, the biggest business cost comes from payroll or labor, which may account for 70% of the business budget. Such costs include employee salaries, wages, benefits and related taxes. Other major costs for businesses come from overpayment of insurance premiums, overpayment of taxes, and excessive advertising.

How do you cut expenses drastically?

To cut expenses drastically, consider taking a more proactive approach. This can include spending money only on line items that are critical to the continued operation of your business. Usually, this requires reducing the largest expenses, which may include payroll. You may need to reduce working hours, benefit plans, salary (including your own salary), and unfortunately, even reduce the number of employees.

Optimize your budget and grow your business

The main concept to keep in mind when trying to cut costs is the importance of reviewing all expenses to ensure that you make the most of every penny you spend. If it is not required or does not provide a return on investment, please consider cutting it. Of course, budget cuts are not fun or easy, but it can provide your business with the profits it needs to survive and possibly grow. In the end, it can benefit you, your employees, and all your customers.

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