There’s no denying the COVID-19 pandemic hit small businesses particularly hard, with the U.S. Chamber of Commerce reporting in June that 1 in 5 is temporarily or permanently closed. While entrepreneurs certainly had the odds stacked against them, there is still hope for a quick rebound for those who acted early, embraced change, and found creative ways to pivot their businesses.
If that sounds like your business, you should be commended. You maintained your company through a truly difficult and unprecedented time and still managed to make it out the other side. However, your work is not done. To get your business back in operational shape, you’ll need to take a hard look at your financial statements and determine where you can trim the fat.
Many business owners are figuring out how to reduce expenses in small business. The best resource to review for this exercise is your cash flow statement. Make sure yours is up-to-date and accurate, and then follow the steps below for determining what to cut — and what you can’t afford to lose.
1. Rethink inventory management
Adequate inventory is obviously necessary, but it’s vital that you revisit exactly how much is prudent for you to keep on hand — and how you manage that inventory.
Excess merchandise ties up your cash flow and locks in your capital. One route you can take is to cut back on your traditional inventory and convert the difference to cash. Start by cutting inventory of slow-moving products by half. Then keep an eye on performance to see whether you can reduce them even further or decide whether it might be time to cut those products out completely.
Now is a great time to invest in an inventory management system that will help you more accurately keep track of stock and needs. Similarly, consider how to transition sales to e-commerce. PEAC Solutions offers Working Capital Loans and other equipment and software financing options to help you obtain these tools.
2. Cut costs on tools and resources.
Did your small business take advantage of the many tools available for free during COVID-19? Make sure you know which resources are truly complementary and which were offered as short-term promotions. If you like the tools and are willing to negotiate, you can likely still get a decent deal on them.
One of the best ways to reduce business expenses and cut costs further is to make sure to get bids on everything, regardless of vendor type. Whether it’s for video production or insurance, you’ll have a better idea of the going rates, and many vendors will price-match. Whenever you can, opt for cloud-based solutions, which are generally more scalable and practical in the long run.
3. Maintain your marketing.
Marketing often gets cast off as a “nice to have.” Unfortunately, that means it can be the first thing to go when business owners cut costs. According to the U.S. Small Business Association, companies are more successful when they capitalize on market opportunities for short-term marketing and sales tactics, such as price promotions and tailored advertising. Additionally, McKinsey research from the Great Recession showed that retailers that spent on marketing saw their revenue rise 10% post-recession compared with other retailers that cut back on marketing (-6%).
Clearly, this is the time to home in on the channels where your audiences are. That might mean social media, which tends to be free or low-cost and which boosts brand engagement. But it could also mean taking out ads in the local paper. The bottom line is to use channels that work best for your ideal customers and cut out the rest.
4. Keep the quality drivers.
If you are switching your company to more lean practices but are afraid that you’ll affect the quality of the services or products provided, you still have options. If you’re understaffed, consider utilizing freelancers or adjusting some employees’ hours to part-time. Hiring is easier now with a larger talent pool, so as long as you’re willing to think outside the box, you can find the perfect fit for your company. If you’re tempted to cut the training budget, don’t — your employees’ morale and productivity could suffer. Instead, pursue lower-cost options or broadened skill development.
Above all, keep in mind that communication and quality of service go hand-in-hand. Stay in constant communication with your customers by sharing with them how you plan to maintain your value proposition as the world adapts to this “new normal.” As everything else around them changes, consumers will feel a strengthened connection to your stalwart brand promise.
As we rebuild our economic post-COVID-19, small businesses have high hurdles to overcome. But by pursuing lean operations and thinking through how to cut costs in your business, you’ll find yourself bouncing back more quickly and nimbly. And you might come up with a few game-changing operational efficiencies in the process.
