Entrepreneurs and owners of small companies had some good news recently, as the Small Business Optimism Index rose to the second-highest level recorded in its 45-year history, according to the National Federation of Independent Business.
It’s an encouraging data point, for now. It’s also good to remember that prudent business owners don’t just plan for what is, but for what may be.
In the 10th year of an economic expansion, with the Federal Reserve responding to the strength in the economy by raising interest rates and signaling more rate hikes are in the future, the odds are that tailwinds will change into headwinds at some point. Our Chief Economist Scott Anderson has even called the expansion “long in the tooth” and suggested that a recession is possible in 2020.
Planning in advance for what to do when that happens should help position you to alter course quickly, rather than struggle to develop a plan. Imagine that you had added many items containing avocados to your restaurant’s menu, knowing how much diners loved them – only to be blindsided by the 125% increase in prices last summer. Suddenly, the need to cut costs loomed immediately ahead, as you took a loss on nearly every meal you served. Should you raise prices? Change your menu? Or have a plan to cut costs elsewhere?
Savvy business owners know that surviving and flourishing is all about keeping costs under control, regardless of the external business environment. But how do you evaluate your cost structure and decide what cuts are necessary?
Here are seven ideas for ways to cut costs:
- If inflation risks are growing, small businesses should look for ways to lock in prices with any long-term vendors and build up a savings cushion for protection against increases in energy and commodity prices.
- It may be time to revise your relationships with your employees, especially since states and municipalities are pushing for higher minimum wages. If salaries are your biggest cost, consider recruiting part-time or seasonal workers for peak periods; hire college students to give them work experience and a line on their resumes.
- Never assume you’re always getting the best deal with your suppliers, but review your options – in price, reliability, and quality – regularly and leverage your loyalty to a supplier into even a small discount. This may ensure you get a small discount for paying bills promptly.
- Little stuff matters. How much cloud storage space and broadband are you paying for? Do you have a TV in the workplace, and if so, why? Cut what you don’t really need. Hang on to even small receipts for tax time. Turn down the thermostat a few degrees. It all adds up.
- Consider barter. You need a new website; do you know a website developer who needs their taxes done if you’re a tax attorney? Check out local barter exchanges when you need your office painted.
- Healthcare for employees is a big cost. Partner with other companies; form a cooperative and buy insurance as a larger group. Benefits of this strategy vary by state: it may be less costly or may give your employees better options. If you add a wellness program, you may save more in insurance costs than the outlay on the program.
- If you need to slash costs, really think out of the box. Do you need your own office? Co-working spaces, like those offered by WeWork, are one option. Or shift to telecommuting, which will save you rent, insurance, utilities, and even taxes. The bonus? Research shows employees often are more productive.
No business owner needs all of these strategies, but all should be available as weapons in your arsenal, to be used proactively or when things get tough. To be prepared is half the battle.
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