5 Cost-cutting Tips for Small Businesses

Reducing expenses may be essential for any organization, but it’s especially important for small businesses since they typically have fewer resources than larger employers. Instead of cutting costs randomly or conducting unnecessary layoffs, successful organizations tend to optimize their resources strategically. Savvy small businesses can identify areas to reduce expenses without compromising productivity or future growth.

Here are five cost-cutting tips for small businesses:

1. Invest in New Technology

Technology allows organizations to improve or even automate manual, error-prone tasks. Adopting new technology, such as software, automation and artificial intelligence may decrease costs by streamlining operations and increasing efficiency. Technologies for small businesses may include project management software, HR information systems, delivery and packing systems, and automated inventory management.

2. Strengthen Employee Retention

Employee turnover can be detrimental to small businesses due to the costs to replace employees, decreased productivity, and lost profits. To avoid this, small businesses can prioritize retention efforts by providing employees with learning and development opportunities, focusing on developing a healthy workplace culture, permitting flexible working arrangements, and offering evolving employee benefits to meet workers’ needs.

3. Manage Health Care Costs

For small businesses that offer health care benefits, costs can add up quickly. Solutions may include reevaluating plan designs and offerings, directing employees to cost-effective services, and improving employee health care literacy. Small businesses can better manage health care costs by adopting several cost-cutting strategies without sacrificing employees’ needs.

4. Embrace Outsourcing

While performing tasks in-house can often be cost-effective, there are instances when outsourcing nonessential tasks can be more economical. Manual, time-consuming tasks—such as accounting, payroll, and benefits administration—may be better suited for outsourcing for some organizations. In some cases, businesses may also find cost savings by outsourcing tasks such as delivery or even customer service.

Outsourcing these kinds of tasks can enable employees to focus on tasks that directly impact a small business’s bottom line and potential growth.

5. Review Expenses

Regularly reviewing expenses can be an effective way to reduce and even eliminate extra costs. Employers should consider negotiating with providers, suppliers, and vendors to potentially defer payments, reduce fees, improve rates, and receive additional services to help during difficult times. By establishing and fostering relationships with these individuals and entities, organizations can cultivate allies and acquire strategic partners, which can pay dividends by creating cost-saving solutions and opportunities. In addition, periodic audits of contracts and expenses for excess spending may uncover spending that is no longer necessary.

Employers can implement several strategies to reduce costs and impact their bottom line. Which strategies are feasible will vary by small business, but a proactive approach to cost-cutting may allow for a larger budget to reinvest in the core of the business and its employees.

This article  is not intended to be exhaustive nor should any discussion or opinions be construed as professional advice. © 2025 Zywave, Inc. All rights reserved.