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Minimising Small Business Expenses

Provided by SME Solutions Center - Kenya

Cutting Costs

Expenses are an unavoidable small business parameter. Nevertheless, you need to know that costs eat away your profits. You thus need to devise suitable ways of reducing business expenses.

Cost Reduction Protocol

Obviously, you are not likely to indiscriminately lower your business’ expenses and fail to experience associated negative consequences. For instance, eliminating the polishing stage in rice processing will reduce operating costs. You are however likely to get low quality, unpolished rice that fetches low prices. To avoid potentially catastrophic outcomes, your cost business expenditure reduction strategy needs to follow a certain procedure. Key steps include:  

  • Identifying your major expenses  
  • Looking for expenditure alternatives that give comparable quality at the same price

Take note that your research need not be solely pegged on price. While reviewing your small business costs, aim to incorporate and analyse other important factors.      

Expense Minimisation Strategies

You could employ a number of approaches so as to reduce small business expenses. For instance, you may:

  • Reduce Fixed Expenses
  • Choose employee types wisely
  • Negotiate for price cuts  
  • Properly manage inventory costs
  • Manage your expenditure and taxation

Negotiating for Price Cuts 

You need to be ready to discuss price reductions with any person you do business with.  If applied consistently, such an attitude could see you saving huge lots of money.  

Managing your Expenditure and Taxation

You need to analyse how your expenditure affects your tax bill. Always seek for avenues of minimising taxation through spending. The small business tax can constitute a relatively huge proportion of total expenses.   

Reducing Fixed Expenses

You need to determine how you could reduce the amounts you pay for your fixed expense items such as leases or insurance premiums.  

Properly Managing Inventory Expenses

Other than the purchase costs, inventory imposes certain expenses onto you. You need to clean, store, and transport inventory. These activities cost money. You need to devise suitable ways of minimising costs that go into your inventory.   

Wisely Choosing Worker Types  

By hiring temporary workers, you derive certain fiscal benefits. On the contrary, a permanent worker would cost you more. To maximise on returns, you need to make proper employee type choices so as to cut costs.  

You, the small business person, need to realise that prudent cost reductions constitute the simplest method of increasing profits. While pursuing small business costs reduction, you need to take care so as to maintain product quality. You need to follow a certain procedure while undertaking this small business cost reduction initiative. The first step is identifying your major business expense items. Inventory, hardware, software, remuneration, and rent are some basic business expenditure items. You then derive suitable cost alternatives. Some caveats are however in order. More often than not, low-priced services and products are of inferior quality. You thus need to carry out careful research into identified cost saving alternatives. This caution ensures that you do not sacrifice quality on the altar of cost reduction. A major strategy that you could adopt so as to reduce costs includes negotiating for price reductions at all times. You could as well seek ways of reducing taxes via spending. Another option is minimising your fixed costs such as small business taxes.  Proper inventory costs management could also save you money. When applicable, you could hire casual workers as a cost-cutting measure.

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