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Ooma Business Blog

Five simple ways for a small business to save money.

By Husain Sumra|Monday December 14, 2020

Knowing how to manage business costs is a critical skill for maintaining profitability. By all means, use every strategy you can to boost your sales, like selling more to past customers with a loyalty program. However, there are times when you will need to cut costs. 

Why small businesses can move faster during downturns.

Business disruptions tend to happen regularly. According to History.com, the average post-World War II recession in the United States lasts less than twelve months. Since small businesses don’t have layers of bureaucracy to navigate, they have a speed advantage in responding to new developments like recessions. One way to respond to a downturn is to cut costs. 

Five short-term cash flow techniques for your small business.

For your consideration, here are some common strategies to improve cash flow. Keep the pros and cons in mind for each option. Some options may be suitable for your situation and some may not.

1. Defer project spending like Pembina.

If you have large projects underway, such as opening new locations or technology upgrades, reduce the pace or scope of these projects to conserve cash. In 2020, Pembina Pipeline Corp. reduced its capital spending by 40% by making several changes, including postponing expansion projects planned for the year.

Your small business may be facing a similar decision. For instance, upgrade five employee computers instead of all 20 employee computers. The pro for this option is that you can sustain your core business by pausing the project. The con for this option is that you may have to live with an incomplete project for a period of time.

2. Reduce marketing spending like Coca-Cola. 

In early 2020, Coca-Cola reported that its sales volume had declined by 25%. In response to this development, the company decided to reduce advertising spending. Your small business might be facing a similar challenge—declining revenue and considering whether to cut expenses. In that case, reducing, postponing or adjusting advertising and marketing spending like Coca-Cola might be a smart option.

Keep in mind that Coca-Cola is a household name, so you may need to adjust this idea to better suit a small business’s approach. For example, you might cut costs of $10,000 from advertising and then use $1,000 of that amount to send cards or gifts to existing customers. Since existing customers already know your business, a small budget to reach out to them can go a long way.

By the way, reducing advertising spending is not limited to Coca-Cola. After all, CNBC reports that multinational companies have postponed marketing expenses during the downturn. Keep in mind that reducing marketing spending may also reduce the number of new leads you acquire as well.

3. Compare your monthly business phone pricing to the marketplace. 

If you are spending $200 or more on your small business phone expenses, there is a good chance you can enjoy some savings by switching to a VoIP system. 

For example, you could switch to a digital business phone system to save money. The advantage is that you can start saving money quickly—this month or next. The disadvantage is that you will need to spend some time learning the new system. 

By the way, saving money is not the only reason to switch to a business VoIP phone system. You can also get new features, like a virtual receptionist, that make it easier and faster to handle customer calls.

4. Use mortgage and rent relief programs like Hawaii’s.

In October 2020, the Mayor of Maui, Hawaii announced a “$1 million Small Business Mortgage & Relief direct payment program.” This program is intended to help companies currently suffering problems as a result of COVID-19. Your city or state might have a similar program. Consider taking half an hour to research relief programs available in your area. Reducing your rent or mortgage bill, even for a short time, could improve your cash flow substantially.

5. Explore your pay cut options like Nintendo.

Applying pay cuts to employees or the owner is another way to save money. However, this measure may have a negative impact. Think about this option carefully. For example, asking an employee earning a $50,000 per year salary to accept a 10% reduction may hurt their household finances considerably. This type of pay cut may encourage staff to start looking for a new job right away. Instead, take a look at Nintendo, where in 2014, company executives (including the CEO) took a pay cut to help the company and avoid layoffs and reducing staff pay, according to the BBC.

Instead of reducing salaries or hourly wages, look at other ways to cut costs.” Reducing one or more employee benefits like free coffee at the office is another way to go. For example, if you shift more employees to remote work, then it will be possible to reduce in-office amenities. You will need to use your judgment as a small business owner to determine which kind of pay cut—benefits or base pay—will be more acceptable to your employees.

Beyond full-time employee compensation costs, there are other types of pay cuts to consider. Some small business owners pay themselves an annual bonus or dividend. If your small business is struggling, you may need to save money on bonuses and dividends for the business owners. Further, take a look at the contractors and consultants you work with to solve business problems. If you are pausing or delaying implementing a technology project, it probably makes sense to save money on related technical consulting.

At a certain point, you are going to run out of options to save money. In that case, it is time to think creatively about ways to improve cash flow.

Improving cash flow without cutting costs.

After you spend a few days or a few weeks putting cost savings in place, your cash-flow situation may still need some improvement. Don’t get frustrated. There are a few ways to improve the bottom line.

1. Run a referral campaign for 30 days.

When you receive a referral from a current customer, it tends to be quite easy to close a sale. After all, the potential customer is coming to your small business on the recommendation of a friend. If you need a short-term way to generate more cash flow without spending money on advertising, run a referral campaign. To get started, use the following steps to get started.

  • Make a list of 10 to 30 customers who have bought from your small business twice in the past 12 months.
  • Call a few customers from the list each day and ask them to refer you to a new customer. If you have problems getting on the phone with customers, you might be calling at the wrong time. Find out the best time to make business calls.
  • After you close a sale with a new customer, send a thank-you card or gift certificate to the customer who provided the referral.

2. Research small business assistance programs.

Some governments offer unique programs to help small businesses. For example, the Michigan Small Business Relief Program has provided support to more than 2,000 small businesses. Spending a few hours researching programs offered by federal, state and local governments may provide the cash flow assistance you need.

An economic downturn is tough, but there is a silver lining.

Few people enjoy talking about pay cuts. However, there is a long-term benefit to taking a close look at your small business spending and revenues. This experience will help you think more critically about new business costs in the future. Besides, you may develop new negotiation skills by reaching out to your bank and suppliers to request better terms.

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