NFIB

Five Ways to Lower Your Operating Costs
10/ 07/ 2003

by Jeffrey Moses

Lowering operating costs has always been vital for small businesses. In today's uncertain economic environment, it's crucial. In a way, reducing operating costs has an even more immediate impact on profitability than increasing revenue, because every dollar saved affects the bottom line. The following tips can help your business lower its operating costs:

Negotiate with your suppliers so you can extend your payments. If your bill cycle is 30 or 60 days, ask to go to 90 days or even longer. If your major supplier will extend your payments, it will essentially give you two payment-free months. This will allow you to use the money for some things you've needed to do or put it in the bank for reserves.

Don't buy supplies until you need them. Wait to purchase supplies one week before you need them. This keeps money working for you in your account, rather than sitting in excess inventory on the shelf or in your warehouse.

Analyze your marketing strategy and cut ads that aren't generating immediate sales. If you've been funneling money into radio spots or newspaper ads that aren't producing immediate calls from customers, you've been losing money. Too many small businesses continue running ads just to keep up an image. You should know exactly how much revenue ads are generating in comparison with their cost.

Meet with your managers or central department employees and inform them that starting immediately, they will have to operate with a smaller budget. At first, they may resist, telling you that they can't possibly do what they need to do with so little money. But when you refuse to write checks for them above the stipulated amount, they will adjust-often with surprising speed. (If a department truly cannot function efficiently with such a cut, the manager or key employees will tell you. You should, however, insist on seeing tangible evidence. At that time, you can judge whether to re-instate additional funds.)

Meet with your business adviser or accountant to discuss ways to make alterations in any company 401(K) or other employee savings programs. Sometimes a simple change will save money for the company while offering added investment options for employees. Similarly, consider making changes in the company's employee health care plan. Shop around. You may find that you can keep most benefits while reducing costs to the company.

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