Doing More With Less: Dealing With Budget Cuts and Reduced Revenue

Learning to do more with less may be the key to survival for small businesses over the next few months.

stressed businessman
Consider making cuts where it hurts the least and working with vendors and suppliers to reduce expenditures

As the new year gets underway and small business owners look for reasons to hope for a brighter tomorrow, the reality remains that many SBOs are still dealing with ongoing reductions in revenue. For many, managing to survive the next few months, in anticipation of a return to normal, may depend on doing more with less — at least in the short term.

Budget cuts and reductions in revenue that impact all aspects of the business are inevitable. At some point, every business experiences a lull or a downturn. Working to limit the fallout while still making necessary changes requires a critical assessment. For starters, look for aspects of the business still generating revenue that you should preserve or build upon. Then look for what drains resources, what you can put on hold temporarily, or even eliminate. Finding quick ways to cut the budget and preserve resources could mean a leaner operation today and into the future.

Look for a proportional solution

If revenues are down 30%, budget cuts should reflect that same percentage. A knee-jerk reaction to cut across the board beyond what’s absolutely necessary may provide a bit of short-term breathing room. In the end, however, you may have cut too much to maintain the other 70% of revenue. The amount you cut should be proportional to what’s necessary to cut. Anything beyond that could have a net negative effect.

If revenues are down 30%, budget cuts should reflect that same percentage. A knee-jerk reaction to cut across the board beyond what’s absolutely necessary may provide a bit of short-term breathing room. In the end, however, you may have cut too much to maintain the other 70% of revenue.

Move on overdue changes

If you’ve been meaning to update the website that rejects more orders than it accepts, now’s the time to do it. When revenue is down, anything that makes it worse must be remedied immediately. It may seem counterintuitive to spend on a new site right now, but if your old one is costing money rather than making money, the investment is worthwhile.

You should deal with personnel issues that have been festering for a long time, as well. Staff members that aren’t pulling their weight are dragging you down. Workers who are overdue for discipline or correction, or really shouldn’t be on the payroll at all, should be dealt with. In addition to fixing a problem, you’ll likely see a boost in morale from other workers who are doing their best.

Cut where it hurts the least

If your restaurant or bar is at limited capacity or open only for take-out, consider suspending the high cost sports TV and Wi-Fi access no one is using. Cutting down on flower deliveries, uniform cleaning (ask workers to launder at home if possible), and other niceties that don’t turn a profit are quick budget reduction tactics.

Miscellaneous spending is another consistent line item in most budgets — it can include anything from bakery runs for a meeting to office supplies. Rein these in temporarily — either eliminate the petty cash fund all together and ask employees to request funds so you can analyze whether the expenditure is truly necessary, or reduce significantly. You may find you never go back to an unfettered petty cash system again.

Work with vendors and suppliers

Talk to the people who supply the goods and services you need to keep your operation running to see if they can reduce some of their costs in exchange for keeping your business. While they may be stretched to the limit, as well, they may be willing to take a little bit less today so you’ll continue to be a customer tomorrow.

Shop around for new vendors who may be able to offer better pricing. As some businesses are closing shop, new ones are opening that may offer better or similar products or services at a lower price point. Don’t forget to contact service providers, like insurance companies, to see where you can make some temporary cuts. If your delivery fleet is down to a single truck, why pay for 10?

Work with staff

The decision to lay off or terminate staff in response to revenue reductions is often the first reaction for business owners, but it weighs heavily. There may be an alternative. If cutting the budget by 20% equals one or more employee’s annual salary, would  all staff members consider taking a temporary reduction to keep everyone on the payroll? Some companies are asking staffers to take a half-day or full day off without pay every week, 2 weeks, or month to spread the pain thinly, but keep everyone employed.

When faced with budget cuts or revenue losses, staff members may have suggestions to offer, as well. Ask for their ideas on what the company can reduce, suspend, or cut to make the operation leaner.

For workers with 401(k) plans to which you contribute, would they be willing to allow you to suspend employer contributions temporarily? For staff members who leverage tuition reimbursement, can you hold off on payments for a short while? You’ll want to continue to make any mandatory employer contributions, for taxes, health benefits, etc., but for any that are not legally required, staff members may be willing to take a gap in payments to keep everyone on the payroll.

When faced with budget cuts or revenue losses, staff members may have suggestions to offer, as well. Ask for their ideas on what the company can reduce, suspend, or cut to make the operation leaner. You may find that the things you thought were important to workers you can easily eliminate.

Focus on revenue generators

As business shifted in response to the pandemic, the focus for large players and small became what generates the highest revenue. If people know your restaurant for your beef sandwiches, let the salad stock deplete and take it off the menu for now. To survive a downturn, concentrate on best sellers. Focus resources, advertising, and promotion on items that generate the highest margins. Other services and products can always be reinstated later, but for now, focus on producing the most bang for your business buck.

Shameless self-promotion

Whatever product or service you provide, now is the time to promote it heavily. While budget cuts and revenue downturns suggest it’s time to cut advertising and promotion, the opposite may be true. They say when times are good it pays to advertise: when times are bad it’s critical to advertise. A full-page spread in the nearest metro market isn’t needed — a campaign that’s targeted to your audience and repeat customers is.

Social media marketing is bridging the gap for many local businesses. Encourage likes to your Facebook, Insta, or Twitter page(s) and use them to promote in-store, online, or delivery purchases. For restaurants, a daily post of today’s specials (with a tempting photo) attracts more customers online than an insert in your menu ever did: use social media pages to tempt at low cost to the business. Use customer email lists to send out promotional materials and notifications that have the potential to drive revenue at almost no cost.

Budget cuts are always a possibility for business. To manage them effectively, look for solutions that cut fat, allow you to meet demand, and focus on tried-and-true revenue streams. When cuts are no longer needed or revenue increases, you may find a leaner, more efficient organization has emerged.

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