Uncertain economic times prompt many small-business owners to look for ways to cut costs. There are obvious ones, such as buying energy-efficient light bulbs and forgoing national brands for the store’s own label when buying office supplies.
But many owners find that spending a little can help them save a lot — using technology, outsourcing work or even hiring a chief financial officer to keep track of a company’s expenses.
The Russo Group brought in a chief financial officer who created a strict policy on expenses and enforced it: Anything over $100 had to be approved beforehand. Jaci Russo, senior partner in the Lafayette, La.-based marketing agency, remembered the chief financial officer, who was her subordinate, confiscating her credit card because she spent $350 without getting prior approval.
The result: “Looking at expenses from year one to year two, I would say we saw about an 18 percent reduction in expenses. For a small business, that’s huge, the difference between being profitable and not.”
Russo described life without a financial executive as chaotic. “We spent money on things and later couldn’t figure out why,” she said.
The Russo Group is seeing some effect on its business from the slowing economy, so the company is paring its expenses further. For example, it recently ordered 12 months’ worth of marketing materials, instead of the usual 36. That kind of cost cutting will prevent the firm’s cash reserves from being depleted.
Buying less and buying cheaper is of course a crucial strategy in cutting costs. That can call for a company to become creative about where it buys supplies and materials, and it forces many companies, particularly manufacturers, to make fundamental changes in their operations.
By switching to recycled aluminum from pure aluminum ingots, Saunders Manufacturing has been able to slash the cost of making products including clipboards and portable desktops. Chief Executive John Rosmarin said of his Readfield, Maine-based company: “Our issues are probably less to do with the economy than the ongoing situation with competition from China.”
Saunders also has stopped anodizing aluminum, a process that uses electricity to place a protective layer on the metal. Instead, his products are painted, saving him a lot of money on electricity.
Rosmarin’s customers, which include big office supply chains such as Staples and Office Depot, demand the lowest possible price. “We made a conscious decision years ago to protect market share, and to do that by reducing product costs,” he said.
Outsourcing of payroll, human resources administration and other tasks can also help a small company lower expenses.
Antarra Communications, a public relations firm based in Garden Grove, Calif., has contracted with a professional employer organization not only to handle payroll and HR chores, but to also obtain health insurance and create a 401(k) plan for employees at a great savings.
“We can offer really good health insurance and a 401(k). What it would cost us to do that on our own in a year would just be ridiculous,” said Susan van Barneveld, the firm’s co-founder.
Outsourcing those parts of the operation also allows van Barneveld and other top executives to focus on business.
She said Antarra also uses technology outsourcing to get work done more efficiently and cheaply. Public relations firms need to keep track of media stories about their clients, something that van Barneveld said would cost her company well into the thousands of dollars every year if it were done in-house. The company subscribes to services that track stories, maintain client lists and do similar tasks.
Van Barneveld estimated that Antarra’s use of outsourcing and technology is saving the firm 25 percent to 30 percent annually.
Technology has been a boon to small companies in many ways. Software applications and Web-based programs of all sorts can get work done faster and with fewer mistakes, and there is plenty of high-tech help designed for companies in specific industries.
Companies looking for help in cutting costs or in finding the right technology can seek guidance from SCORE, the organization of retired business people who advise small-business owners. Contact SCORE at www.score.org or by calling 800-634-0245. They can also contact the Small Business Administration’s Small Business Development Centers, which also offer assistance.
Joyce Rosenberg covers small-business issues for the Associated Press.
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