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10 ways to reduce small business costs

Posted by Neha De

July 19, 2022

A study by a U.S. Bank reveals that 82% of small businesses shut down due to issues related to cash flow mismanagement. No business can exist without cash flow, but there are ways you can increase net income by either growing revenue or by lowering expenses. 

There are two main ways to increase revenue: either by adding new goods and services to create additional sales or by raising the prices on goods and services you already sell. 

That said, if it is not the right time to increase prices or add new products, the next option to increase cash flow is to lower expenses. Cutting costs in business typically comprises reducing the overhead spent to run the everyday functioning of the business and provide goods or services to customers.

If a firm is struggling to stay afloat, lowering expenses may be the only viable way to stay in business. Even if the business is financially stable, cutting costs offers myriad benefits. Some benefits of cutting costs are: 

• Lowers the likelihood of running into cash flow problems in the future.

• Raises the profit margin by reducing operating costs.

• Allows business owners to offer lower prices, which differentiates them from competitors.

• Makes money available to hire additional staff or to outsource several tasks.

• Makes funds available to invest in improving products or services, or even expansion.

The bottom line is, by saving on operating costs, a business has more funds to put back into its operations, which creates more opportunities for growth.

10 ways to trim small business costs

Check out these 10 ways a small company can save on business costs:

1. Develop a business budget and stick to it –

It is impossible to make smart financial decisions in business without a clear idea of how much money is coming in and going out of a business each month. Budgeting goes hand-in-hand with reducing business costs. By implementing a business budget on a daily basis, small business owners can reduce the cost of doing business effectively.

2. Lease rather than buy –

When thinking about buying expensive equipment, leasing rather than buying can be an effective cost-saving measure. Leasing has several benefits over buying, even if buying used equipment. One of the top advantages is saving money in the short term.

When buying equipment, a company is responsible for purchasing the item entirely. And while one can choose to put down a down payment and obtain a loan to pay for the rest, loan interest rates can be quite high, which can add to the business liabilities. And even though a business may still need to put down a down payment with a lease, the total upfront costs are significantly lower, making the financial barrier to entry more attainable.

3. Hire only the required personnel –

Often, business owners can get ambitious and driven to build their teams rapidly in order to have all possible employees in place right from the start. However, labor costs can be quite high, especially in the current market. This is especially true when dealing with volatile revenue, turnover and other growing pains of new businesses. One way to trim costs and stabilize a firm’s finances is by recruiting only those whom you absolutely need, at least in the beginning.

Another way to go about keeping personnel finances under control is by embracing gig workers, remote employees and freelancers. According to a report released by the Freelancers Union, the majority of U.S. employees will be freelancing by 2027. As a result, gig workers, freelancers and remote employees are changing the way organizations conduct business. Embracing the gig economy helps save costs, allows smoother onboarding and businesses get access to seasonal help. “Contingent workers help employers control labor costs, and respond to the peaks and troughs in demand that come with seasonal trends,” according to EY.

Talk to us about how our outsourced business services can help your firm access financial expertise to keep expenses under control and cope with rising costs.

4. Avoid meaningless meetings –

A report by CNBC finds that 67% of workers say spending too much time in meetings distracts them from doing their job, which suggests meetings are often an expensive waste of time.

While meetings are sometimes essential, they are most beneficial when they are kept short, have a strategic objective and only involve key players. “One of the most common factors that make meetings unproductive is when the wrong people are invited, many of whom show up out of obligation rather than a desire to contribute,” Korn Ferry’s Cathi Rittelman told CNBC.

“While collaboration is absolutely what drives innovation and success in today’s global marketplace, it’s time to get creative with how we use our time together,” Rittelman added.

5. Opt for a cost-effective office space –

Location is one of many things a business owner needs to consider when running a company, as it can have a significant impact on a business’s long-term success. This is because office/commercial spaces can make up a large part of a business’s overhead costs.

Therefore, reevaluating the location as well as the size of an office space, and thinking about whether or not it actually addresses an organization’s biggest needs can help with saving money.

6. Invest in insurance –

New business owners with tight budgets may view insurance as an unnecessary expense they can easily do away with. However, a business may need insurance to protect itself, as well as to keep costs down. One lawsuit can be enough to shut down a small enterprise before it even has a chance to get off the ground — the average customer injury insurance claim can go up to $35,000, shows research

7. Outsource when required –

A startup owner does not need to do everything in house. They can fill staff gaps without paying full-time salaries by outsourcing specific tasks and responsibilities to a specialized outsourcing firm.

For instance, a specialized accounting outsourcing firm can give small business owners back time and peace of mind by taking care of such back office functions as finance and accounting so they can focus on growing their company. It also allows them to enjoy benefits including cost savings, security and confidentiality, access to the latest tech tools, among other features.

8. Get the most efficient business credit card –

For business expenses, business owners should always keep a credit card on hand — they should never rely on their personal cards. That said, it is best to consider a business' credit limit, fees and interest rates when choosing a credit card. Business-specific credit cards offer rewards such as discounts, cashback and perhaps even points that can be used towards travel related to the business.

9. Make the most of virtual technology –

An organization’s cost-reduction strategy should include virtual technology. One good thing to come out of the COVID-19 pandemic is that businesses now know just how effective remote operations can be. Travel expenses can be minimized through virtual meetings, and office space can be eliminated by using virtual offices. 

10. Go green –

Replacing obsolete lights, fixtures and other appliances with long-lasting, energy-efficient alternatives can go a long way when trying to save money. So does reducing the use of paper by going paperless.

Using smart appliances and thermostats can also help lower energy bills. Additional cost reductions can also be achieved by creating a workplace culture that focuses on reducing carbon footprints.


Reduced costs increase a company's bottom line by reducing unnecessary expenses. Different businesses use different methodologies and achieve different results. Nevertheless, the process of cutting costs effectively is dynamic, continuous and reflective. The nature of business is fluid, and cost reduction must follow suit.

Want more?

Since 2006, Escalon has enabled thousands of startups to have a proactive approach to managing finances with our back-office solutions for accounting, HR, payroll, insurance, and recruiting — and we can help yours too. Talk to an expert today.


Neha De
Neha De

Neha De is a writer and editor with more than 13 years of experience. She has worked on a variety of genres and platforms, including books, magazine articles, blog posts and website copy. She is passionate about producing clear and concise content that is engaging and informative. In her spare time, Neha enjoys dancing, running and spending time with her family.

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