When the coronavirus crisis began, small business owners braced for the difficult weeks ahead. What many business owners didn’t realize is that weeks would become months of slow sales and new government restrictions. As states and local communities slowly begin the long process of reopening the economy, small businesses are mobilizing to return to normal.
While the idea of reopening is promising, it won’t be business as usual. 60% of business owners anticipated their revenue would decline in the next six months. There’s still a long road of recovery ahead, and during this stretch, many are scrambling to learn how to reduce business expenses while still turning a profit and keeping cash flow smooth.
Unfortunately, there’s no clear-cut answer—the right path can vary significantly based on your industry, location, and how your business is performing. But by taking a step back from the hustle and bustle and looking at things on a deeper level, you can find ways to cover expenses and turn a profit.
In this recession survival guide, you’ll learn everything you need to know to cut costs and make it through stronger than ever.
Reducing Business Costs In a Crisis
The coronavirus crisis might be unprecedented in that it has affected businesses in nearly every industry. Fundamentally, though, it’s not a new challenge—the same crisis management techniques can help you weather the storm.
Businesses are responding to unique challenges, but the bottom line for everyone is the same: cut costs and drive revenue.
During a growth period, you should think about the long term. It makes sense to spend excess cash and utilize financing on marketing and growth-related costs—which may not directly drive your bottom line for months or a year.
A crisis or downturn calls for a different mindset. When your main priority is simply covering costs, you need to shift your cash flow management strategy toward areas that will help you cover costs. This might mean reducing your spend in other areas, even if they’ve been part of your budget for several years. For example, consider shifting to social media marketing, which can help generate new business and doesn’t cost money.
Before you cut bills, though, you want to make sure you’re eliminating the right costs—not the expenses that will take your business to the right level. Going overboard could take you ten steps back, and make it harder to scale back to your pre-coronavirus stage.
Take Full Stock Of Your Business Expenses
The natural place to start is taking stock of all of your expenses. What does your business pay for on a daily, weekly, monthly, and annual basis? If you haven’t looked in a while, there may be more expenses than you know.
Evaluate your pre-budget crisis and think about all of the business expenses you have, including direct and indirect costs. Consider everything, including:
- Employee wages, salaries and benefits
- Operating costs like rent or a mortgage, utilities, and more
- Supplies, inventory and/or materials
Not all of these may apply in your scenario, but think deeply about what else might be on your plate.
Once you have your overhead and other costs lined up, think about how you can reduce monthly expenses to cover coronavirus-related expenses.
Make Cash Flow Your Number 1 Priority
You don’t want to lose progress during a financial crisis, but prioritizing the long-term well-being of your business is crucial. And right now, that means making it through the short term.
Review all of your expenses (operating and discretionary) to identify costs that aren’t driving cash flow right away. It might make sense to cut some expenses altogether, and simply scale back in other areas.
For example, if you’re earning business through word-of-mouth and pure necessity, it might make sense to reduce your marketing spend. Be sure to look closely at which marketing channels are generating leads and make decisions accordingly. Review any subscriptions, memberships or other recurring charges, then keep the most important ones.
If possible, consider reducing business expenses for your office by continuing to work remotely. While business ramps back up, you may be able to hire employees on a freelance or part-time basis, and return to a normal full-time arrangement when the difficult phase ends. This can also help you save on other expenses in the office like coffee, paper goods, and more.
Rather than hiring a bookkeeper, receptionist or other support staff, think about outsourcing to third parties that can handle these important tasks at a fraction of the cost. You may be able to save money and improve service.
Needless to say, any major, big-ticket overhauls or other large expenses should wait until things are back to normal. You can also network with others in your industry or similar industries to learn about more money saving tips.
Overall, you need to shift your expenses to survival mode: keep the expenses that will prove lucrative for your company. When possible, put anything that’s “nice to have” on the backburner.
Deferring Payments to Vendors, Lenders & More
Reducing business expenses doesn’t only mean cutting out line items in your budget.
By now, vendors, lenders and banks are well aware of the new limitations small businesses are facing. As you reduce business expenses, also think about how you’ll pay other debts. If there’s a way you can save on debts or defer payments, then consider it.
Approach your vendors and inquire about any options they have. Chances are, if they’re open to deferring payments, they’ll already have a system in place.
The same goes for other debts or fixed expenses you have. If you anticipate cash flow will be much better in the coming months, then try shifting your commitments to that time frame.
Your long-term relationships might prove more valuable than the money you’d save in the short term. However, if the option is on the table, it makes sense to take it.
How to Prepare for a Recession: A Rainy Day Fund
If you have a recession fund, then now’s the time to use it.
Drawing on your savings is a great way to cover coronavirus (and other) costs without reducing business expenses. Be sure to calculate how much you can comfortably draw, and how long that cash will keep you afloat.
Also, bear in mind that, while the economy is reopening, there could be similar obstacles ahead. You may want to keep a portion of your savings in the event of a second wave of infections. While it’s too early to say how a second wave could affect small businesses now that we understand the challenges, it could impose similar restrictions.
If you don’t have an emergency fund, then be sure to start one once your business is back to normal. You don’t have to put aside a significant amount—even a small amount deposited in a high-yield savings account can quickly recession proof your finances.
However, be sure to automate the transaction. Owning and operating a business doesn’t leave you with much free time—by automating it, you can take the burden of remembering to make the deposit off your shoulders.
Innovate Your Business Processes and Structure to Save Time, Cut Costs & Boost Efficiency
It won’t come up on your expense report, but the time your employees spend carrying out tasks counts, too. If it’s been some time since you reconsidered how your company operates on a basic level, it may be time to do so.
Even a minor change to your process could help you save time. In the end, this counts as money saved—you’ll be able to accomplish more. It may not be a direct cost that you’re saving, but it’s just as important.
Get Back to Business With a Small Business Loan
There’s a long road ahead, but we’ll be here when you need it.
At National, we help you obtain the lowest rates, longest terms and highest financing amount by working in our 75+ lender network. After you apply, you can learn your options in minutes, and funding in just a few hours.
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