12 Cost-Saving Initiatives to Trim Your Business Budget

 What Is Cost Optimization?

 The Importance of Cost Control and Cost Reduction

 12 Innovative Cost-Saving Ideas to Minimize Expenses

 Maximize Your Cost-Saving Initiatives (and Your Profits)

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Cost-saving initiatives in business can help offset rising expenses or falling profits.

Here are 12 tips for trimming your company’s expenses:

1. Review your expenses

2. Set measurable cost-cutting goals
3. Prioritize your biggest savings opportunities
4. Adopt automation to increase efficiency
5. Use outsourcing to cut payroll costs
6. Negotiate discounts with suppliers and contractors
7. Join buying groups
8. Take advantage of invoice early-payment discounts
9. Make your marketing and sales investments count
10. Minimize space usage
11. Implement energy efficiency to trim utility costs
12. Track tax-deductible expenses

Read on to learn what cost optimization is, why it’s important and how to implement
an effective cost-reduction strategy.

What Is Cost Optimization?

Cost optimization is a type of business optimization strategy that seeks to minimize

expenses to maximize profits. Simply put, you limit spending to what is needed to
achieve business objectives in a cost-efficient manner. You can achieve this by
systematically reviewing spending, prioritizing expenses and reducing costs where
feasible.

In the process, you ensure all spending is achieving its intended purpose in the most
efficient manner. You pursue these goals through tactics such as automation,
outsourcing and comparative shopping.

Cost Avoidance vs. Cost Saving

A distinction is sometimes drawn between cost avoidance and cost saving. In this
context, cost saving refers to the reduction of current expense payments. Cost
avoidance refers to the minimization of future expenses.
For example, using this terminology, reducing current staff size might be a cost-
saving strategy, whereas replacing current workers with automation in the future
might be a cost-avoidance strategy. Here we’ll cover both types of strategies together
without making a rigid terminology distinction.
The Importance of Cost Control and Cost Reduction

Cost minimization is one of the most important business financial planning strategies
because it allows you to increase your profit margin without increasing your sales.
(Indeed, increasing your sales may take a significant amount of investment and labor
to improve your sales performance.)

In contrast, cost reduction focuses on lowering your expenses rather than increasing
them. This makes it a feasible financial strategy even if your current sales
performance isn’t strong.

Even if your sales are strong, cost-cutting initiatives can increase your bottom line.
Combining efficient cost-cutting strategies with effective marketing and sales
strategies provides a path to maximize your profits.

12 Innovative Cost-Saving Ideas to Minimize Expenses

Any type of business expense can be a candidate for cost-cutting, so there are many
ways you can pursue expense optimization.

Here are 12 of the best business expense management ideas applicable to most
industries and companies. These cost-cutting ideas will work for large companies as
well as smaller businesses.

1. Review Your Expenses

A strategic approach to cost-cutting initiatives starts with a review of your expenses

as recorded in your financial statements.

Your key financial statements include your:

 Income statement (profit-and-loss statement), which records your revenue and

expenses for a given period
 Cash-flow statement, which compares how much cash you have coming in
during a given period with how much you need to cover expenses
 Balance sheet, which compares your assets and liabilities

Of these, your income statement and cash-flow statement will be most relevant for
reviewing your expenses. Your income statement provides a tally of your total
expenses as well as an itemized breakdown of what makes up your costs. Your
cash-flow statement lets you see how far your income is going towards covering your
expense obligations.

Use your financial statements to help you identify how much you need to trim your
expenses and which costs need cutting. For effective cost management, get in the
habit of reviewing your financial statements on a regular basis, such as once a month
or once a week.

2. Set Measurable Cost-Cutting Goals

Another cost-saving initiative for companies is to review your current numbers so you
can establish goals for your future numbers and determine the best ways to preserve
your capital.

Seek to identify specific areas where you can reduce costs, such as:

 Increasing your year-over-year savings, or the amount you reduce your

spending from one fiscal year to the next
 Reducing spending on specific line items, such as payroll, material
procurement or marketing
 Lowering spending in specific departments
 Negotiating discounts with suppliers
 Consolidating your number of suppliers so you deal with those who offer the
best discounts
 Reducing “maverick spending” by employees who make purchases without
going through authorized channels
 Cutting unnecessary expenses, such as duplication of tasks by 2 different
departments, maintenance of outdated technology or mailing material that
could be sent digitally

Set target numbers in these types of areas to guide your cost-cutting efforts.

3. Prioritize Your Biggest Savings Opportunities

As you review your expenses, you’ll notice some items consume a larger portion of
your budget than others. Placing a priority on reducing your biggest costs first will
make your cost-cutting efforts more effective.

Typical large expenses include:

 Payroll
 Taxes
 Rent
 Inventory
 Marketing

Your top expenses will vary based on your industry, business model and other
variables. Focus on the expenses that have the biggest impact on your budget.

4. Adopt Automation to Increase Efficiency

Automation represents one major strategy for cutting costs. By allowing you to
perform tasks more efficiently, automation can reduce your cost per unit of
productivity, lowering your operational expenses. Automation also can save you
money by allowing you to replace human labor, in some cases.
Any routine task that involves repetitive actions is a potential candidate for
automation. Types of tasks that can be automated include:

 Syncing data from your sales software to your bookkeeping app to reduce
data entry labor
 Updating inventory count after a sale is made
 Sending invoices
 Scanning receipts for expense reports
 Project management scheduling and updates
 Logging into blogs and social media profiles to update marketing content
 Managing routine customer service inquiries

Before adopting a new technology solution, do a cost-benefit analysis to confirm that

the benefits of automation will outweigh the cost of investment. If you determine an
automation solution is in order but you’re tight on cash, consider whether you should
seek financing resources to cover the cost of your investment.

5. Use Outsourcing to Cut Payroll Costs

Another major cost-trimming strategy is outsourcing. Outsourcing can help you

reduce the costs of payroll, often one of the biggest expenses on business budgets.

A number of different tasks lend themselves to outsourcing, including the following:

 Tasks that are essential for infrastructure but don’t involve your team’s core
competence, such as bookkeeping
 Tasks you lack the in-house skill to handle effectively, such as tech support
 Tasks you could handle in-house but which could be handled more efficiently
by outside specialists, such as fielding routine customer service calls

Review your payroll costs and operational structure and seek to identify places where
outsourcing might help you cut expenses.

6. Negotiate Discounts With Suppliers and Contractors

Persuading your suppliers and contractors to provide you with discounts can be
another way to cut costs. Many providers advertise discounts for volume business,
while others may be willing to extend consideration if you take the initiative to ask.

Suppliers and contractors may be more willing to offer discounts if you indicate an
interest in purchasing from them regularly or on a large scale. You also may be able
to gain leverage in negotiating discounts by doing comparative shopping before
committing to a provider.

7. Join Buying Groups

Businesses often band together to form buying groups, sometimes known as group
purchasing organizations, which collectively negotiate discounts with suppliers.
Joining a buying group can allow you to enjoy these prearranged discounts.
Keep in mind, joining a buying group typically requires paying a membership fee.
Additionally, buying groups may have qualifications to join, such as a minimum
annual revenue, time in business or purchase volume. You can find industry-specific
buying groups by searching online, talking to business peers, asking your local
chamber of commerce or attending trade shows.

8. Take Advantage of Invoice Early-Payment Discounts

Suppliers and contractors sometimes offer discounts for early payments. For
instance, if your invoice requires you to pay within 30 days, it may include an
incentive for paying within 10 days. Even if your terms of service don’t include such
an arrangement, you may be able to negotiate one.

Check to see whether your provider offers an early-payment discount or is willing to

arrange one. If you are able to obtain an early-payment arrangement, make sure you
plan your cash-flow projections so that you can cover it.

If you need financing to cover the cost of early invoice payments, one option is to get
an advance based on your own unpaid invoices to customers, known as invoice
factoring or accounts receivable financing.

9. Make Your Marketing and Sales Investments Count

Marketing and sales are a necessary expense for generating revenue, but can
consume a significant chunk of your budget. Another corporate cost-savings initiative
is to make sure your marketing investment is yielding a sustainable return.

Take steps to optimize your marketing strategy, such as:

 Using key performance indicators to track the success of your marketing

campaigns
 Focusing your investment on your most successful marketing strategies
 Using content marketing to attract traffic from search engines and social
media
 Improving website copy to increase your conversion rates
 Following up with website visitors through text and email marketing
 Cultivating repeat business with existing customers
 Reaching out to re-engage past customers

If you need help improving your sales performance, consider seeking assistance
from a professional marketing agency.

10. Minimize Space Usage

Rent can be another significant business expense. You may be able to minimize
rental costs by shifting office tasks to remote workspaces or outside contractors.
Review your usage of space to determine if this is an area where you could trim your
budget.

11. Implement Energy Efficiency to Trim Utility Costs

Utility expenses can be another drain on your budget. Consider trimming your
expenses by adopting energy-efficiency measures, such as:

 Installing a smart thermostat

 Performing regular maintenance on air filters and heating and air conditioning
equipment
 Switching to smart lighting
 Installing energy-efficient bulbs
 Using power management features on computers

The U.S. government’s Energy Star website provides an action workbook to guide
small businesses through implementing energy-efficient measures. Your local utility
company can help you arrange an energy audit to identify your biggest energy drains
and recommend cost-saving steps.

12. Track Tax-Deductible Expenses

Certain business expenses can be deducted from your taxes. Make sure to track
your expenses carefully so you can claim deductions for which you’re eligible.
Automated business expense report tracking software can assist you with this
process.

The IRS provides a guide to deducting business expenses. Consult your tax
professional for detailed guidance.
Maximize Your Cost-Saving Initiatives (and Your Profits)

Pursuing cost-saving initiatives represents one of the most efficient, least expensive
ways to increase your profit margin. In some cases, taking the steps necessary to cut
your costs may require an up-front investment in automation, energy-efficient
equipment or other measures.

If you need financing to implement your cost-cutting strategy but don’t have much
cash on hand, consider a form of business financing funded based on your current or
future sales, such as accounts receivable financing or a merchant cash advance.