9 Ways to Reduce Costs and Improve Cash Flow In Your Small Business
The ongoing pandemic has shaken the business world, and whilst sadly many businesses have had to close up shop, others have managed to pivot how they operate and adapt to this new world. Regardless, growing your business and churning out a profit has always been challenging as a small business owner.
It is now more important than ever to adopt strategies that can help you strengthen your business in an economic downturn. There are debts to be settled and salaries to be paid. Paying your creditors requires cash, but what if the money at hand is insufficient?
There are several ways you can shave your operational costs, improve cash flow and avoid the anxiety of being unable to pay your creditors – and this does not have to involve letting go of your staff.
Here are nine tips to reduce costs and improve cash flow in your small business:
1. Take a Full Review of Your Service Providers
Take a full review of primary overheads, services, pricing, and necessity. Do you need all the products or services you are currently paying for? If so, are there cheaper alternatives?
Review your phone, internet, electricity, and insurance providers and shop around for providers who offer better quotes. Often these days your current providers will match other offers you’ve found – if not, then make the switch to the provider with the better deal.
Analyse outsourced services that your business could actually handle. For example, do you need an accountancy firm to handle every aspect of your books? You could instead look to bring some of it in-house and call in freelance professionals for more complex tasks.
2. Automate Labour Intensive Tasks
One significant method of increasing productivity – that can also act as a cost-cutting measure – is reducing the time and money spent on labour-intensive jobs through automating specific tasks using software.
For example, if you do conduct a lot of your bookkeeping in-house, is it efficient or are you still shuffling mountains of paper? You could look to automate most of this through the use of accounting software programs – saving time and costs by reducing human error, and improving cash flow through more efficient billing methods.
3. Optimise, Don’t Cull Your Workforce
Cutting staff can be a morale killer among the remaining staff. The departing employees will also usually walk away with a wealth of knowledge and experience. Rehiring when you are back on your feet can be an expensive and time-consuming affair since you will have to train new employees to bring them up to speed with the business operations and their role.
If point 2 [above] is done well, it can free up your people to focus on other aspects of your business which could, in turn, help it grow and generate more cash flow through revenue. You may need to restructure and consolidate roles where employees are under-utilised. Any restructuring should align with your business goals, and the expertise you will need moving forward. Identify which employees are essential for your business growth and find ways of retaining them within the new structure – potentially through upskilling.
4. Review Customers
Though it may seem counterintuitive, reviewing your customers and cutting some off can reduce your business costs – particularly when it comes to businesses offering a service. Some customers chew up more resources than they pay for, and only a review can hint at customers who are not adding value to your business.
Once you’re in a position where you don’t need to take on every client/business that comes your way, you can set up internal checks and measures before working with a client to make sure they are going to be a good fit for your business. For example, if you ask them to fill in a short questionnaire about their business and requirements and then follow it up with a meeting, you will get a better understanding of them, and whether they’ll “fit” in with you and your business.
5. Avoid Late Fees and Actively Seek Discounts
Paying late fees on bills and loan repayments loads an unnecessary financial burden on your business. Put up measures to manage your cash flow, such as automating payments and setting reminders when your payments are due.
You can sometimes secure discounts by paying your bills early or switching to payment plans that allow you to pay annually rather than monthly payments. Paying bills monthly is more expensive in the long run. Paying bills early or upfront when you have the cash flow can also be beneficial to your business.
6. Negotiate Better Terms With Your Suppliers
Check if you are overpaying your suppliers and negotiate better prices wherever possible. You can consider buying your inventory in bulk so that you can leverage discounts that your suppliers might be offering on large orders.
Many suppliers are willing to offer extensions to their customers’ payment terms. Consider asking for an extension to avoid short-term cash flow bottlenecks. Look for alternative options if you cannot negotiate better prices and terms with your current suppliers.
7. Consider Working Remotely
Working from home has now been normalised due to the ongoing pandemic, and while it can pose some challenges, the benefits of working from home have outweighed them – one of those being that working remotely can shave business costs.
Working from home can bring down your business’s rent, power, and other office overheads significantly. It also has the potential of giving you better access to talent that is adept at working remotely – essentially opening the talent pool to anywhere in the world.
8. Monitor Your Marketing Budget
Many small businesses spend a lot of money on ineffective marketing campaigns that result in a poor return on their investment. It’s imperative that you track as much data as you can to have a better idea of spend versus return. A useful tool for tracking digital marketing activities is to set up Google Analytics for your small business website.
Closely monitoring money spent on this facet of your small business is essential if you want to improve your cash flow.
9. Taking Out Loans May Not Be The Best Answer
One option to improve your cash at hand is applying for a loan from your bank or other finance provider. Whilst this can result in a swift injection of funds, obviously, loans accrue interest which will leave you paying more in the long run, and that’s without contemplating the risks of defaulting on your loan.
It’s also worth noting you shouldn’t expect to be able to easily obtain a loan as banks are also experiencing these current unprecedented times and they may be less willing to lend you money.
An alternative option for you is looking into small business grants in Australia.
The Bottom Line
The going is tough for businesses across the world, and this is especially true for small businesses. As we recover from the COVID-19 pandemic, most small businesses are struggling to improve their cash flow.
Sometimes the best ways to improve your financial situation may appear basic or straightforward and each step may only result in minor improvements to your bottom line. Just remember that every little step helps and a bunch of successful steps could be just what you need to see real improvements in your cashflow.