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9 Cost Management Strategies for Challenging Economic Times

August 01, 2024 | Insurance 101

This article was originally published June 24, 2024

If you’re a business owner or decision-maker, you know that your company will face challenges from time to time. One of the most common causes is the economy. When it’s stagnant or trending downward, it can take your results with it. 

The good news is you can implement cost management strategies to offset the effects of difficult economic conditions. 

What steps can your company take to support profitability during tough times? This article focuses on business cost management and how managing costs effectively can put more money in your company’s pocket. 

Let’s dive in by first considering why cost management strategies are so important.

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Why Managing Costs Effectively Is Essential for Small Businesses

It’s true that businesses have to spend money to make money, so why put time and effort into lowering your company’s costs? Great question. Having a cost management plan benefits your company in multiple ways, including:

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    Improved profitability. By controlling costs, you can protect your bottom line and stay profitable even when the economy is struggling.
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    Better cash flow. Reducing expenses frees up cash. That’s essential since it gives you flexibility to adapt and respond quickly to changing market conditions.
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    Enhanced competitiveness. With more money available, you can invest in new products and services, lower your prices, or take other actions that give you a competitive edge.
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    Increased resilience. Using effective cost management techniques helps you insulate your business, withstand economic shocks, and bounce back quickly.

So, whether the economy is trending upward or downward, it’s a good idea to develop a cost management system that helps your company minimize expenses and maximize profits.

Cost Management Techniques for Small Businesses

Business cost management might seem like an abstract concept, so you could be tempted to push it to the back burner until you have some free time. (Which, for many busy business owners, might be never.) But cost management techniques are concrete steps you can take today to make a meaningful difference in your company’s finances. 

Here are nine things you can do right now to reduce expenses and improve profitability:

  1. Create a comprehensive cost management plan. A detailed plan is the foundation of effective cost management. It helps you figure out where you can cut back and make informed financial decisions.
  2. Track your expenses. At a minimum, you’re likely recording your expenses, but it’s crucial to monitor them to identify areas where you might be overspending. There are lots of tools you can use (from simple spreadsheets to accounting software) to track your expenses and categorize them to gain insights into your spending patterns.
  3. Save money on essentials where you can. For example, biBerk’s prices for business insurance can be up to 20% less than other providers, thanks to our online, direct-to-you approach to purchasing coverage.
  4. Reduce overhead costs. It’s important to identify and eliminate unnecessary expenses. Consider downsizing your office space, switching to energy-efficient lighting and appliances, or taking other actions to make your operations leaner.
  5. Optimize inventory. Excess inventory ties up valuable capital and can lead to losses if items get damaged, spoil, or become obsolete. Implement an inventory management system to manage stock levels, forecast demand, and avoid overstocking.
  6. Consider outsourcing tasks. Outsourcing actions that aren’t your core services (like accounting, marketing, or IT, if those aren’t your company’s offerings) can help you reduce labor costs and access specialized expertise without the expense of hiring full-time employees.
  7. Invest in technology. Technology can help you automate processes, improve efficiency, and reduce costs. Consider investing in the latest systems and services to simplify and streamline business operations. Project management tools and customer relationship management (CRM) systems are a few examples.
  8. Review your marketing and sales practices. It’s typically not a good idea to drastically cut back on your marketing or sales efforts when the economy is struggling (as tempting as that might be). But it’s important to review what you’re doing to make sure you’re getting the most value from your outreach efforts. 
  9. Seek professional advice. Some small business owners find that an outside financial advisor or business consultant can help them see things from a new perspective and identify better ways to get through challenging economic conditions.

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Cost Management Strategies: Develop Them Today. Continue Them Going Forward.

Reducing expenses will improve your company’s bottom line, regardless of the economic conditions. So, you’ll definitely benefit from the time and effort you put into developing and implementing a cost management plan. 

Keep in mind that business cost management might start as a project but should become just another aspect of operating your business. As the economy changes and your market evolves, you should always be looking for new and different ways to reduce your expenses—in the same way that you’re always hunting for new business opportunities. 

Lowering your costs while growing your revenues is the best recipe for small business success, regardless of what the economy is doing!