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How Small Businesses Can Cut Costs and Maximize Spending

Marketing and Advertising

Q: How can I reduce costs without sacrificing quality? 
A: Small business owners can reduce costs by utilizing on-demand office services, automation, freelance workers, and reducing unnecessary business expenses. Some of the most common ones include administrative costs, office supplies, debt and credit card interest, subscriptions and memberships. Check out the infographic below for 36 Money Saving Ideas.

Cost savings is an important part of business operation. Companies that take cost savings seriously can gain a financial advantage that can help a company grow and become profitable sooner.

  • Financial hurdles are among the top reasons why new companies fail. If you want your business to succeed, you need to make sure that you’re only spending where necessary and that you’re cutting costs wherever possible.
  • Small businesses can save money in a variety of ways, including looking at their labor, office, supply, and debt costs.
  • Outsourcing some services and leveraging flexible workspace solutions can help companies tackle the top two business expenses: labor and real estate costs.

When thinking about cost savings, companies stand to benefit from taking a proactive approach by evaluating expenditures and finding innovative ways to cut internal costs.

How Small Business Owners Can Save Money

Why Innovative Cost Saving Ideas Are Important

By cutting costs, companies can increase profits even if sales numbers don’t increase. Cost cutting techniques have proven to be a valuable business strategy for companies going through tough and challenging times (e.g., a global pandemic).

Innovative cost cutting strategies can help companies retain top talent, which can help not only maintain service and product quality, but also keep company culture strong. There’s nothing more de-moralizing for employees than being afraid that they’ll be laid off or seeing their colleagues go.

One way companies often approach innovative cost saving ideas is by regularly asking how they can reduce costs in the workplace.

As company executives already know, the two top expenses of companies tend to be:

  • Staff
  • Workplace costs – specifically real estate.

Finding workplace areas where costs can be cut can help not only with savings, but also with business agility and success.  (More on this later).

Why Businesses Fail

Even businesses with great product or service ideas often fail. In fact, the U.S. Bureau of Labor Statistics shows that:

  • Approximately 20% of new businesses fail within the first two years
  • Almost half (45%) of new businesses fail within the first five years
  •  65% of new businesses fail within the first 10 years.

The culprit?

In most cases: money

Financial hurdles like lack of capital or funding have been cited as one of the most common reasons why businesses fail.

Insufficient cash flow can affect companies in several ways:

  • It can make it harder to market your product or services
  • It can make it harder to acquire new leads / customers
  • It can make it challenging and stressful to cover expenses
  • It restricts opportunities to grow and scale your company
  • It prevents you from investing in the necessary tools and resources (machinery, software, basic equipment)
  • It can strain relationships with vendors and suppliers.

To prevent your company from failing and from experiencing negative cashflow, it’s important to reduce small business costs.

Fixed Costs vs Variable Costs

Companies have two different types of costs: variable and fixed.

“Variable costs vary with the amount of output produced, and fixed costs remain the same no matter how much a company produces.” – Investopedia

When it comes to cutting costs, it’s easier for companies to focus on variable costs given that reducing variable costs causes less business disruption vs reducing fixed costs. However, cutting fixed costs is also possible and, in some instances,—where big savings are necessary—recommended.

How Small Businesses Can Save Money

The first step to helping your company save money is to take a hard and honest look at all of your expenses.

You need to be as thorough as possible, noting everything you’re spending money on—not matter how insignificant it may be (like the toilet paper or coffee you’re buying).

Once you have a clear idea of where your money is going, you can start identifying areas where you can cut costs.

Common unnecessary expenses for small businesses and startups include:

  • Unused/Underutilized office space
  • Paperwork
  • Food
  • Credit card interest / debt from missed due date payments
  • Trade shows / out of town events
  • Ineffective advertising
  • Vehicle expenses
  • Excessive Supply
  • Unnecessary software (especially if cloud versions are available)
  • Administrative costs
  • Excessive amounts of trainings or celebratory events

Let’s take a close look at some of these.

How Can a Company Reduce Costs?

Marketing and Advertising

Advertising costs can pile up, especially if you don’t have a solid strategy that optimizes resources.

One way to ensure that your advertising spending provides a return on investment is to make sure that you know your target customer.

Some questions and issues you need to address include:

  • Is the company advertising in platforms and channels where our target audience is?
  • Are we measuring the impact of our campaigns to make sure they’re effective?
  • Can we identify the marketing channels that perform best? Can we identify the ones that perform worst?
  • Are we researching relevant keywords and optimizing our ad campaigns?
  • Are we creating engaging content and ads?

Beyond knowing your target customer and ensuring that you’re reaching them through your ad campaigns, it’s also important to evaluate and incorporate low-cost advertising solutions to your strategies.

Today, there are plenty of effective advertising strategies that are free or very affordable:

  • YouTube
  • Facebook
  • Word-of-mouth
  • Guerilla marketing
  • Content marketing

Labor Costs

Labor costs can account of up to 70% of total business costs. Labor costs include:

  • Wages
  • Benefits
  • Payroll
  • Taxes
  • Insurance
  • Paid time off
  • Overtime
  • Healthcare
  • Sick days
  • Training and onboarding

To lower labor costs and to operate on a smaller HR budget, consider the following strategies:

Cut Employee Costs

Before cutting employees, first consider cutting employee costs. Two ways companies can cut employee costs are:
– Reduce free lunches
– Monitor overtime.

Outsource Non-critical Tasks

Rather than hiring a tech department to work on an internal platform, consider outsourcing to an existing one.

Utilize virtual assistants and Live receptionists.  Consider leveraging live receptionist services in place of a full-time receptionist.

Outsource services that are only used occasionally, instead of hiring a new full-time position.

Implement an Intern and/or Trainee Program

Hire college students or recent graduates as interns for a set-period of time. Once that time slot is completed, you can evaluate whether they’re a good fit for a full-time position.

Consider hiring people with less experience; entry-level candidate salaries are lower, and you can train them on the necessary skills. They can grow as the company grows.

Reward Employees

Make way for commissions and incentives. Reward employees who are driving sales and company performance.

Review Staff Members

Re-evaluate your staff requirements; if necessary, let go underperforming staff members.

Leverage the Power of Negotiation

Don’t shy away from negotiating with whomever you are doing business with—vendors, suppliers, landlords, partners.

The goal of negotiating is to get a better price or deal—sometimes this can be achieved by buying in bulk, other times by reading the fine print and taking over some responsibilities or losing some benefits that may not be as necessary or critical for your company.

Negotiation is one great cost cutting example oftentimes used in business.

Negotiation best practices:

  • It takes time. Foster relationships and be patient.
  • Buy in bulk.
  • Be willing to compromise.
  • Don’t make it all about yourself—the best negotiations are win-win deals.

Rethink Your Office Space

With today’s technological advances, companies are positioned to adopt a more remote business model. Employees are also interested in more flexible work arrangements, including remote and hybrid work.

So, if you are searching for ways on how to reduce costs in the workplace, consider implementing remote work arrangements, as they can help reduce office costs.

By allowing employees to work remotely, even if just part-time, you will reduce your company’s need for office space significantly. This means that your company will be better positioned to leverage flexible workspace solutions, which can be more cost-effective than a traditional office lease.

Flexible workspace solutions can be hired on a short-term basis and they can be used on an as-needed basis. This means that your office space will never sit unused, as is common with traditional office arrangements.

By outsourcing your office needs, you won’t need to think about costs related to:

  • Utilities
  • Facilities management
  • Workplace layout and design
  • Furniture updates
  • Amenities
  • Miscellaneous costs (coffee, tea, toilet paper, paper towels, cleaning products, etc.)

Flexible workspace plans include all of the above for a set monthly fee. This can also make financial planning much easier for your small business.

You can find plenty of flexible workspace solutions—coworking space, meeting rooms, conference rooms, business centers—on Alliance Virtual Office’s directory.

Embrace Remote Work

Remote work can help companies cut costs significantly, and not just by reducing a company’s office space needs. Remote work arrangements can help companies make overhead cuts that last.

Remote work and hybrid work models can help reduce operating expenses in business. In fact, a recent research report “The Business Case for Remote Work — For Employers, Employees, the Environment, and Society” found that companies could save almost $11K for each employee that works at home half of the time.

The cost savings, according to the report, would come from:

  • Increased productivity
  • Reduced real estate costs
  • Reduced absenteeism
  • Increased business continuity
  • Reduced turnover.
  • Services like VoIP systems can help keep your company and team connected, even if you don’t have a full-time office, landline, or receptionist.Alliance Virtual Offices offers a great VoIP system, you can check out our $30/mo plans here.

    Think Eco-Friendly

    Being an environmentally friendly business is worth it. Various eco-friendly business practices can help your company cut costs in the long run.

    There’s also the added perk that many customers today care about a company’s environmental footprint; therefore, being an eco-friendly business can help you attract and retain clients.

    If you’re thinking about how to keep costs low in a business through eco-friendly strategies, consider the following:

    6 Cost Saving Eco-friendly Tips 

    1. Go paperless and stop printing unnecessary documents.
      Fun fact: printer ink is among the top 10 most expensive liquids on earth. So much that in some cases it’s cheaper to buy a new printer than purchasing new ink cartridges.
    1. Recycle, and not just in the traditional sense. Consider recycling furniture and office supplies.
    1. Purchase energy efficient appliances.
    1. Implement eco-friendly policies like:
      • Disconnect chargers unless they’re in use
      • Encourage employees to turn off lights
      • Invest in green energy solutions
    1. Reuse! Buy second-hand equipment when possible.
    1. Use technology to your advantage:
      • Installing sensors for light and temperature control can help cut costs significantly.


    Automation can be an effective strategy to figure out how to reduce fixed costs in a business operation.

    Technological advances like artificial intelligence, algorithms, automation, robotics, and big data can help companies identify areas that are burning through cash and resources.

    Other than help identify pain points, technology can also help make business operations much more efficient and it can free up time for employees to focus on high-value tasks, rather than low-value repetitive tasks.

    Some key areas where companies are embracing automated technology to delegate tasks are:

    • Automated accounting systems
    • Automated social media posting
    • Automated customer service—through chatbots.
    • Automated customer service
    • Data entry
    • Lead management
    • Booking and scheduling
    • Hiring
    • Employee analytics
    • Report generation.

Cost Cutting Examples for Small Businesses

Below are some additional ideas on how to reduce small business costs:

  • Utilize Smart technology
  • Implement Passive energy alternatives:
    • Solar energy
    • Double-paned windows
    • Light blocking / curtains
  • Pay credit cards and debt on time
  • Pool resources with other small businesses
  • Re-evaluate employee perks and benefits packages
  • Limit travel expenses
  • Look for new vendors and suppliers
  • Tap into your existing talent—before hiring a freelancer or contractor, find out if your existing employees have the necessary skill set for specific or temporary projects.
  • Re-evaluate subscriptions and memberships.
  • Cut back on company swag and goods.
  • Combine big events rather than host several events a month.
  • Redesign existing processes.

When Should You Think about Cutting Costs in Business?


To keep your business operations lean, you need to make sure that your spending is in check. Excessive or unnecessary spending can lead to faster burn rates, which can quickly result in negative cashflow statements.

However, this doesn’t mean that you shouldn’t spend (or more accurately, invest) in certain business areas. Keep in mind that oftentimes, to see results you need to invest first, which means parting with cash and other resources.

Abandoning a guaranteed monthly paycheck, sacrificing personal capital, and relying on cash flow are some risks that entrepreneurs and business owners need to take to be successful in business.

More importantly, by cutting unnecessary costs, companies can free up resources to improve products and services, hire the right talent, and develop innovative solutions; all of which can help a business stand out in a crowded marketplace.

As a small business owner, consider setting a personal goal of evaluating your business expenses at least once a quarter. Often, you’ll find that there are some areas that need less capital expenditure now than they did only a few months ago.

The goal of cutting costs is to increase cashflow without compromising business quality, efficiency, and effectiveness.

Conclusion and Further Reading
If your small business is losing money, don’t panic! This is a normal business occurrence, especially in the early stages of a company.

However, it’s important that you keep losses in check and that you ensure that your business is bringing in more money than it is losing; otherwise, your business is more likely to fail.

At the end of the day, the important thing is to make sure that you know where the company money is going. If you identify any unnecessary spending, you can turn things around before it’s too late.

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Ceci Amador
Ceci Amador is based from wherever her laptop is. She enjoys traveling and visiting new flexible workspaces. If you’d like Ceci to check out your workspace, feel free to reach out to her (and send a plane ticket).

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