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10 Top Ways for Your Small Biz to Cut Costs

Lan Nguyen

The U.S. economy has been in a recession since December 2007, so says the National Bureau of Economic Research. Do your best to avoid becoming another business statistic by adopting these 10 cost-cutting steps.

Clean up your act. Give your company a physical, from top to bottom, recommends Mike Bauer, co-author of The Wall Street Diet: Making Your Business Lean and Healthy. That means examining all processes to see if you can be more efficient. Identify areas where you can eliminate waste and duplication.

Focus, focus. Redefine all goals so they are profit-oriented, says David Zahn, a small-business consultant and president of StartUpBuilder.com. And make sure all expenditures produce a return. If that means cutting back on trade shows and using that money for the Web site, then do it. If it requires eliminating a pet project that doesn't contribute to the bottom line, go for it.

Outsource. After focusing on what you're good at, outsource what you're not. "The number of functions that can be outsourced to companies in India and elsewhere is truly staggering," says Matt Edelman, CEO of PeopleJam, an online resource for lifestyle experts and reviews. "There may be some small quality trade-offs, but they will not be as substantial as the savings."

Dictate your terms. Get on the phone and negotiate with your vendors about price, payment schedules, quantity -- anything that'll keep you going. "Most small businesses don't realize they have the ability to change payment terms," says Bauer, who is also executive director, North American automotive at CSC. "You can get up to a 3% upswing in goods you purchase if you negotiate." If your cash flow is good and steady, offer to pay in advance of a shipment. Suppliers who need the money may be willing to bend a lot if they know they're getting paid. "In today's economy, if you have the money, you can negotiate terms from a position of strength."

Conversely, offer clients the opportunity to pay for your products or services at the current rate should you plan to increase prices next year, recommends Zahn. That will help your own cash flow if that's an area of concern.

Upgrade your system. If you haven't done it yet, install EDI, electronic data interchange, says Bauer. The initial start-up investment and monthly fees are well worth it. Not only does it cut down on the cost of each business transaction, it creates a paper trail so when it comes time to file your taxes, you've done most of the work already.

Encourage biking. Paul Dorn, co-author of The Bike to Work Guide, says encouraging employees to bike to work not only keeps them healthy and productive, it cuts down on the cost of providing and securing employee parking.

In addition, as part of the $700 billion bailout for Wall Street, the Bicycle Commuter Act was adopted. Companies can get a tax credit for every staff member who two-wheels it to work. "The Department of Transportation says a majority of trips is three miles or less," says Dorn, who blogs about this on bikecommutetips.blogspot.com. "Three miles on a bicycle is about 20 minutes if you go as slow as you can. So many people live within the range of bike commuting." Just be sure to help them map out a safe route to work or talk with a local biking group for tips. Also provide a safe, secure place for people to lock up their bikes.

Trim down perks. Before you start eliminating necessities like health insurance, examine what nonessentials can be done away with, says Bob Brumm, author of Do You Have Money to Burn? Save More of What You Earn, Earn More on What You Save. Cut down on magazine or newspaper subscriptions by having people share. Ditch the reimbursements on car service. Rein in everyone's expense reports, including yours.

If you have to look at your medical bill, negotiate with your insurance carrier, shop around for a cheaper plan, or increase deductibles and employee contributions. Another option: set up Health Savings Accounts. If you need to eliminate some benefits, assure employees that this is a temporary, albeit necessary, step that will be reinstated once the economy is stronger.

How do you connect? Shop around for cheaper electric, phone and Internet service, says Edelman. That is, after you've lowered the thermostat and instituted energy-saving procedures such as requiring every employee to shut down their computers and turn off the lights before heading home.

Touch base with your accountant. Brumm recommends taking full advantage of 179 expenses. "This section of the tax code allows you to immediately depreciate the asset used for business at least 51% of the time," he explains. "In 2007, it was up to $112,000."

Lay people off. This should be the very last resort, says Siamak Farah, CEO of InfoStreet. Not only do you run the risk of cutting into the muscle of your company, you can damage morale. Employees may be less willing to give their all if they feel you're not trying to trim costs in other ways first. When times get better, and they will, you're going to have to rehire and train people. Try alternatives like offering staff a four-day workweek and make them privy to all the wins and losses of the company. "When we come up with a loss, I guarantee you no one comes in my office looking for a big raise," says Farah. "We treat everyone like a family member."