Strike a Balance: Business Consultants Discuss Cutting & Spending

There are many ways to boost the bottom line through smart expense trimming, but don’t forget there’s a time and a place to invest in the future of your business.

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Cutting expenses might seem like a sign of trouble. But it doesn’t have to be. Even the most profitable business can benefit from taking a long, hard look at where it can rein expenses in.

That’s only one side of the equation, though. The other side is determining where you might profitably spend more – and making the right decision on that side of the ledger can be just as important to long-term success.

As business consultant Ron Hequet of Weatherford, Texas, points out, decisions about cutting and spending are deeply intertwined. Hequet was one of a number of business experts who recently offered their insights on the twin questions of what to cut and where to spend more. Ideally, says Hequet, a cost-cutting plan should be part of a much bigger picture; a plan to boost your business to increase profits – or as he puts it, “a plan to sell your way out of a decrease in profitability.”

Even if cutbacks are urgent, you should still proceed with care. “There are key functions or processes in any business that, if eliminated, would place the company in jeopardy of losing market share or core customers,” Hequet cautions. “Don’t use an axe; use a surgical knife.”

WHERE TO CUT

Anemic promotion: Look closely at your ad spending, suggests Ken Boyd, author of Cost Accounting for Dummies and a St. Louis-based small-business finance consultant. Where do you get the bulk of your referrals – the Yellow Pages? An online listing? Through a curated directory like Angie’s List? Focus on the ones that deliver and cut back on – or cut out entirely – those with less oomph for your operations.

“Small businesses either attempt too many ways to produce sales simultaneously or go with the ‘hot’ sales method of the month,” says Hequet. Business owners need to research ways that work best. And if you don’t know where your customers come from, ask them! Ask all first-time callers “How did you hear about us?” and analyze the answers.

Dave Bakke of moneycrashers.com, points out that social media – Facebook, Twitter and the like – can offer free or inexpensive opportunities to market your services that may be as effective as more expensive traditional advertising channels.

In a related issue, do you belong – and pay dues – to a host of business organizations in which you have little or no involvement? Drop out, says CPA Thomas Scanlon of Borgida & Co. in Manchester, Conn.

Inventory: “Sell what you have,” Hequet says. Don’t automatically restock. And going forward, as much as possible, stock only what you can sell during the current busy season. Yes, that can be tricky. Some items you rarely need – but when you do, you want them on hand so that you complete the job, not make the customer wait. Like most of these other suggestions, there’s no one-size-fits-all answer.

Office supplies: If you’re not already signed up for your office supply retailer’s rewards program, you’re probably missing out. Bakke notes the discounts you get for accumulated purchases can add up to important savings

Vehicle insurance: Check if your company vehicles are over-insured, says John O’Donnell, of Online Trading Academy. Can you afford a higher deductible or a lower replacement value? Are you paying twice for the same coverage – like towing insurance both through your insurer and through a motorist’s club? At the same time, don’t overreact: As CPA Scanlon points out, having too little insurance is a huge risk you don’t want to take on.

Cellphone insurance: This kind of insurance is probably expendable for almost all of us. It seems like such a small amount – $5 to $11 a month tacked on your cellphone bill – but over a two-year period that can add up. Not only that, but for some smartphones, you can still have a deductible of $200 – and you’re limited to as few as two claims a year. Instead, see if you can include your cellphones in your general business policy. Or set aside money to replace or repair equipment.

Credit card processing fees: Of course you must take credit cards if you want fast payment on your invoices. But take time to research alternative processing providers, says DeKesha Williams, a business strategist with Vizions Consulting.

Technology: Williams also suggests looking closely at things like website fees, and your cellphone and office phone service. Online presence is mandatory, but low-cost alternatives are proliferating for all of these. Check them out.

Utilities: When did you last have an energy audit of your office? Bakke points out that your local power company probably offers that as a free service, and can help you find ways to cut your bill for heating and electricity.

Customers: Wait, what? Cut customers? Yes – within reason. Consider shrinking your service area, especially if outlying regions are less profitable. “The smaller geographical area you cover, the more you save on time and gas,” notes Scanlon. And while it may seem easier said than done, end relationships with “pain-in-the-neck” clients, he adds: “It frees up time and energy to focus on nice clients.”

WHERE TO SPEND

Tools and trucks: In the trades especially, your vehicles, tools and equipment are among your most important assets. Don’t overpay, but don’t skimp, either, when making equipment purchases or investing in maintenance and repairs. “You need your vehicles and equipment in good working order,” says Boyd, the St. Louis consultant.

Technology: You can make smart choices that will save you money on tech, but don’t try cutting it out entirely – tablets, smartphones and networked computers are all here to stay, and they are part of your business infrastructure, Scanlon says.

Marketing and service: “Don’t cut down your social media,” says Scanlon. “This is the way of the world now.” Don’t cut corners on appearance and image, either; prospects and existing customers alike buy perception. And don’t skimp on personalized service, he adds: “This is what keeps your customers coming back and makes you referable.”

Williams recommends improved customer engagement – finding ways to cement the relationship between your business and the people whom you serve – is part of what you’re investing in, she says.

STRIKE A BALANCE

Ultimately, whether cutting costs or spending more, don’t just act blindly. Make informed decisions, based on sound evidence and rational analysis – not just of how you spend your money, but of the service, product or provider you’re spending it on.

And as Hequet points out, any cost-cutting campaign is just an emergency first step. The key is what comes next: creating a plan for growth. “Growth without a documented plan and the preparation of the talent to act is a wish,” Hequet says.

And if all you have is a wish, in a year or even less you’re likely to be forced to make more and deeper cuts all over again. At that point, you might not even have the chance to decide how you can invest more. Because the money to do so just won’t be there.



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