Most small and medium-sized businesses (SMBs) operate with an already tight budget. Even the most successful businesses often face scenarios where it’s important to cut costs or otherwise risk business failure. Trying to sustain growth while keeping your business running at optimal capacity can be challenging when faced with serious financial pressures. At such critical junctions, hiring a fractional CFO can help you create a strategic plan to optimize spending while retaining much-needed profitability levels.
Many business owners cut costs reactively without having a laid-down guide to dealing with financial issues. Cutting costs impulsively without a strategy due to economic inflation, low demand, or tough competitive markets can stifle long-term growth. Reducing headcount or slashing budgets in areas that constitute major revenue drivers like marketing can lead to losing valuable talent and decreasing profitability. Instead, focus on using smart cost-cutting strategies aimed at improving operational efficiency, which can save costs substantially, not just random expense reductions that could jeopardize the business’s future.
Here are four key areas where SMBs can cut costs while retaining a high productivity level to meet customer demand and satisfaction:
Business owners can automate several business areas to free up time, money, and resources for other tasks. Here are seven key areas you can automate:
Sometimes, you pay for tools you rarely use. Normalize periodically reviewing your SaaS subscriptions and eliminating unused tools.
Many unnecessary expenses are hidden in normalized routines. Taking time to evaluate business operations can help identify areas of waste or unnecessary expenses. To improve your business’s operational efficiency, begin with a thorough audit of your business operations to identify areas with processes you can automate or streamline. You may come across repetitive tasks that add little to no value to your business. Eliminate those. Take a closer look at the cost of each expense and examine how you can bring down costs. You may need the expertise of a CFO to narrow down on what to cut down on and what to invest more into for better profitability. Some of your accounting, HR, finance, and IT staff can work remotely. Consider switching to a hybrid work model to reduce onsite office expenses. To further reduce employee costs while maintaining operational excellence, consider outsourcing some non-core roles to fractional experts.
Reassessing market prices for services you use or raw materials for your business can help you save costs. Some vendors allow users to customize their plans and negotiate better deals. Look for frequently used services where you can negotiate better rates. Many suppliers offer cheaper rates on annual and multi-year contracts. The caveat to these longer-term agreements is that you may spend more for the same service if you need to switch vendors before the current contract ends. To be on the safer cost-saving side, sign up for a trial period to be sure you can stick to the tool or service for the plan duration. Businesses rely on various tools to streamline everyday work, from payroll management to customer relationship management to accounting tools. Some B2B services offer some of these work tools in an all-in-one package, offering business owners the chance to consolidate resources into one.
To assess your finances for cost-cutting opportunities, evaluate your financial records. Rank all your expenses in the last six months from the highest to the lowest. This will give you a clear picture of where your money went. Begin by working down the list to identify areas to reduce expenses. Think of the return each expense brings to your business. Not every expense is critical to the health of your business, so cut less on expenses that generate bigger returns and more on those that bring less returns. For example, your marketing budget may look hefty, but it’s critical to generating leads for sales, and as such, it might not be wise to ruthlessly cut it down. Reducing fixed costs like rent, taxes, and loan payments may be difficult. However, others, like staff salaries and maintenance costs for equipment, are flexible enough to accommodate a change. If your business has undergone significant restructuring, you may be able to save on insurance coverages you no longer need. A fractional CFO can walk you through how to save costs from insurance to opportunities embedded in cash flow processes. Keep track of your financial statements to examine how your business is doing and where it’s headed. If you need more funding to get your business on track, consider securing a line of credit or offering royalties to an investor in return for capital. If you’re out for something small-scale, try negotiating delaying payables with your clients to free up cash for the short term.
On average, full-time CFOs in the United States demand salaries of over $400,000 per year. CFOs can help you reduce costs while maximizing revenue growth and profitability quickly and effectively. Every business should be able to get the best financial expertise to keep their business thriving at an affordable cost. Rather than onboarding a full-time CFO, hiring a fractional CFO to work on a contract basis will help you save significantly while getting premium access to financial expertise. Brandon Ley, co-founder at EAT New Media, reports how fractional CFOs at Fresh FP&A helped manage costs and grow their customer base three times its previous figure with a massive increase in cash flow! When you partner with a fractional CFO, you can rest assured they’d do all the heavy lifting, from studying your business model to identifying how to customize costs and boost profitability without placing too much strain on your budget.
The goal is to cut costs, not quality. Here are eight steps you can take to start cutting costs without compromising on quality:
Cutting costs doesn’t mean compromising growth it’s about optimizing resources. At Fresh FP&A, we’ve worked with small and medium-sized businesses to go from “inefficient profit” to 10x profitability. Ready to get the financial expertise to turn around your business with a customized cost-cutting strategy? Let’s talk!
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