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10 Ways to Cut Business Costs

John Tozzi

Small changes to reduce expenses and improve profitability can help prevent more painful cuts later on. Here are 10 ways your company can trim costs without touching your core business, with links to in-depth articles on each technique.

Reduce Energy Use

Switch to compact fluorescent lighting to save electricity. Cut your heating bill with better insulation and windows. On the road, slow down and use GPS systems to boost mileage and reduce fuel costs.

Telecommute

Send some or all of your staff to work from home to save on the cost of office space. You'll also save workers money and time commuting.

Pay Invoices Early

Take advantage of discounts suppliers offer for paying invoices early. Often trade terms offer 2% off for payment within 10 days.

Curb Travel Expenses

Cut business trips that don't generate revenue, such as conferences, and opt for less expensive flights and hotels on essential trips.

Find Cheaper Space

Get bargains on new office space or renegotiate better terms on your current lease now that real estate markets in many areas are tilting in tenants' favor.

Buy Secondhand

Find office equipment and furniture at a fraction of the retail cost as other businesses liquidate or unload their assets.

Go the Barter Route

Trade goods and services with other businesses to reduce cash expenditures.

Manage Your Inventory

Keep only supplies you need in stock to reduce overhead

Cut Your Tax Bill

Take advantage of tax deductions for new equipment purchases, hybrid cars, and other expenditures.

Audit Fixed Assets

Clear your books of assets you no longer have to reduce your insurance bills and taxes.

The Dow Jones industrial average rallied through the afternoon, rising 4.7 percent, or more than 413 points, to close over 9,000. The broader Standard & Poor's 500 rose 4.8 percent and the tech-heavy Nasdaq showed a gain of 3.4 percent.

The gains in U.S. markets followed a rebound overseas where government efforts to stabilize the banking sector continue. ING, the Dutch insurance and banking giant, surged 15 percent in morning trading after reports it would receive a $13 billion cash injection from its government. It closed up 21.7 percent. News reports also suggested that the International Monetary Fund is planning a $6 billion bailout of Iceland.

London's FTSE closed up 5.4, the Paris CAC rose 3.6 while the Dax in Germany gained 1 percent. Japan's Nikkei was up 3.6 percent.

U.S. governments efforts to stem the financial crisis have focused on unfreezing the credit markets and encouraging banks to lend to one another, other businesses and consumers. Those markets appear to be making small steps toward loosening.

The rate at which banks lend to one another -- the London interbank offered rate, or Libor -- eased slightly today, down to 4 percent from 4.4 percent on a three-month loan. But it is still much higher than the 1.5 percent bank lending rate set by the Federal Reserve. In normal times, the two rates would be closer to each other.

Speaking before the House Budget Committee about the financial crisis, Bernanke said a stimulus package may be appropriate since the economy is likely to be weak for a while. Any such program should be designed to have immediate impact and promote access to credit, he said.

"With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Bernanke said.

Democrats, including House Speaker Nancy Pelosi, have touted the need for a second economic stimulus package, but it has received a cool reception from the Bush administration.

Economists are also watching earnings reports for evidence of how the financial crisis has already impacted corporate balance sheets and the outlook for the rest of the year. Two toy giants reported earnings today: Hasbro beat expectations today, while Mattel fell short. In statements, executives from both companies said they were optimistic about the holiday shopping season.
In light of the recent global economic environment, our business performed well in the quarter," Robert A. Eckert, Mattel's chairman and chief executive officer, said in a statement. "The all-important holiday season, however, is ahead of us."

Mattel and Hasbro closed down 2 percent and 4.2 percent, respectively.

Meanwhile, oil prices continued their rebound today. After a three-month slide, crude oil prices were up 2 percent, or $1.69, to $73 a barrel. Prices have been dragged down by expectations that the financial crisis would dampen demand. But the Organization of Petroleum Exporting Countries, or OPEC, is expected to announce this week it would cut oil production.

The rebound has helped shares of energy companies. Exxon Mobil closed up 10.2 percent, Conoco Phillips up 9.9 percent, and Chevron up 11.6 percent.

"Now's the time to make tough decisions," says George Cloutier, chief executive at American Management Services, a small-business consulting firm in Orlando, Fla.

Cutting costs can help free up much needed cash flow during a crunch, but when the economy is expected to stay down indefinitely, more dramatic measures may be in order, he says.

Here are five tactics to help keep your dwindling business capital flowing:

Slash Expenses

Streamlining your business can help you stay in the black even when customers make fewer purchases. Be sure to call in overdue accounts receivables, sell off unsold inventory and analyze expenses such as office space, supplies and even your company's phone bills.

"Cut your costs viciously," says Cloutier. For instance, if you're long-time delivery vendor isn't fulfilling orders on time and it's costing you money, cut them loose. The same is true for employees who aren't pulling their weight. You might even need to do away with some benefits. While having to let go of a trusted staff member or business partner is never ideal, when the economy sinks, business owners need to make tough calls.

Eliminate Unprofitable Operations

Consider spinning off unprofitable business segments, suggests Victor Cheng, a small-business consultant in San Francisco. "Focusing on your core business"—especially if your other divisions are losing money—will serve you in a downturn, he says. To help you figure out what's working and what's not, schedule an appraisal of your business's operations.

Seek Alternative Funding

Some business owners take on a second job. Others use consulting to pad their wallets. One thing is for certain: If you're relying on a credit line to float your business until, say, after the holidays, now's the time to create a backup plan. "Don't assume that line of credit will be there," says Cheng. "If you are in that kind of situation, you either have to have a back up financing source or back up revenue source."

Embrace Incentives

As the nation's unemployment rate ticks up, business owners should think about restructuring their company's compensation, says Dave Waddell, president of Waddell & Associates, an investment firm in Memphis, Tenn. He suggests linking more employee pay to variable incentives such as commissions, which are payments linked to specific sales targets. For instance, if 20% of an employee's compensation stems from commissions, make it 50%.

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While commissions generally work well for sales staff, linking bonuses and other financial incentives to a company's performance is another compensation technique, which generally goes for everyone. "If employees hit goals for the firm, the firm is going to do well even in tough times," says Waddell.

Cut Production Costs

"The only way to make it through a recession is to be a low-cost producer," says Bob Prosen, a small business management consultant in Dallas. Think about it this way: Inefficient competitors can survive for a time at their current cost structures, but in the end, they'll have to either raise prices or go out of business. In contrast, a low-cost producer may try lowering prices to attract added sales, says Prosen. "You're better off taking a little less profit to keep the business going."

"For sale" signs line the front yards of several houses in a Holl

Senators, including Banking Committee Chairman Christopher

By Lori Montgomery and Paul Kane

Washington Post Staff Writers
Tuesday, September 23, 2008; Page A01

Democratic leaders said they were near agreement with the Bush administration yesterday on key provisions of a massive plan to revive the U.S. financial system, but the two sides remained at odds over other issues and were struggling to gain the support of rank-and-file lawmakers on both sides of the aisle.

Although the White House has warned of severe consequences if the bailout plan is not approved by Friday, lawmakers crafting the measure said their work may well stretch past that deadline.

The Bush administration is resisting changes to the measure being sought by Democratic leaders and many Republicans, including one that would grant the government authority to cut executive pay at firms that participate in the bailout and another that would guarantee that taxpayers share in the profits if those firms recover financially.

Meanwhile, rank-and-file lawmakers -- returning to Washington after a weekend in their districts -- voiced outrage that taxpayers were being asked to pay for the excesses of Wall Street and that Congress was being prodded to rubber-stamp the biggest federal intervention in the private market since the Great Depression. While Democratic leaders said they could embrace the bailout plan with certain modifications, a growing minority of lawmakers were starting to question the very premise of the Treasury Department's proposal.

Sen. Richard C. Shelby (Ala.), the ranking Republican on the Senate Banking Committee, yesterday issued a statement saying he was "concerned" that the bailout plan was "neither workable nor comprehensive, despite its enormous price tag.

"In my judgment, it would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted, and may actually cause the government to revert to an inadequate strategy of ad hoc bailouts," Shelby said, urging Congress to "immediately undertake a comprehensive, public examination of the problem and alternative solutions rather than swiftly pass the current plan with minimal changes or discussion."

Lobbyists have swarmed Capitol Hill to press lawmakers for changes to the legislation. Representatives of community advocacy groups from around the country yesterday appealed to Federal Reserve Chairman Ben S. Bernanke to include homeowners in the bailout.

Despite the pressures, Rep. Barney Frank (D-Mass.), who is taking the lead for Democrats in talks with Treasury Secretary Henry M. Paulson Jr., insisted that the measure was moving forward.

"There was nothing on Friday. There was a bill on Saturday. There's a lot more agreement today than there was on Saturday. So a great deal of progress has already been made," said Frank, who chairs the House Financial Services Committee.

Frank said Paulson agreed to government oversight of the bailout program, including an independent board that would monitor the expenditure of $700 billion to take troubled mortgage-related assets off the books of faltering firms. The three-page proposal Paulson gave lawmakers over the weekend would have permitted him to run the program without review by other federal agencies or the courts.

Frank said Paulson also agreed that the Treasury should use its power as the new owner of billions of dollars in mortgage-backed assets to assist homeowners at risk of foreclosure. Democrats are pressing for provisions to require the Treasury to force banks to rewrite bad loans for struggling homeowners and to forgive a portion of their debt, using programs at the Federal Housing Administration and other agencies.

Treasury officials confirmed that they were in talks on those issues and were "making good progress." However, big disagreements remain, both sides said.