To do a better job of cutting costs, successful entrepreneurs take risks by optimizing costs. They understand that linear cost-cutting is in reality an avoidable trap.

The best way to cut costs is to do it is with skill and precision but taking what might appear on the surface to be risk-taking. Some cost-cutting initiatives actually prove to be really bad decisions.

Two key questions to ask yourself: “What business value does my company get from this cost?” What do we risk by cutting this cost?”

After all, that’s the inherent nature of entrepreneurship.

Here are best tips on cost-cutting:

1. Partner with your human capital

Explain your concerns to your staff. Ask your employees for their opinions on expenses and what should be cut. Discuss profit drivers and partner with your employees.

A bonus: Employees will more likely feel they’re valued. If so, they’ll be inclined to give you their best ideas.

2. Avoid across-the-board cuts

When facing too many expenses, companies focus on the big expenses. But instead of cutting fat, they make the make of cutting into their muscle core – what truly generates profits.

Think for a moment. Can you risk cutting skills, talent and branding?

Instead of mass cutting, perhaps all is needed is some tweaking in two of your biggest assets: Employees and marketing.

Savvy bosses know they can increase market share even in downturns by not cutting back on employees and marketing. Why?

Proverbially speaking, their competitors are shooting themselves in the foot by making such cuts while you profit by superior customer service.

Go slow on cutting your human capital and marketing to protect your brand, as well as maintenance of your equipment. Start with small expenses such as minor office expenses and electricity consumption.

3. Simultaneously look for opportunities to grow

Sometimes there’s too much focus on costs at the expense of new business development. By adapting for a different market, multiple revenue streams can be invaluable.

True entrepreneurs are always on the hunt for growth opportunities. While cutting unnecessary costs, look for ways to diversify your customer, and products and services.

4. Re-evaluate your technology

Focus on business cost optimization with productive use of your information technology and its implementation.

Maximize your use of apps. Analyze how you can get more out of your technology to help your employees work more efficiently.

5. Connect the dots

Your due diligence must include examining your entire value chain. Understand how and where you generate value, and where you can eliminate waste.

Cutting costs in one department, for example, might hurt your objectives in  a high-volume sales effort.

6. Focus on sustainability

Unfortunately in tough times, many executives panic. It’s important to stay detached. Concurrently evaluate all potential business value.

Don’t focus solely on your urgent situation in lieu of laying a foundation for sustainability.

7. Assess your relationships

It might be tempting to automatically fire your bank or vendors in favor of less-expensive partners. In a word, don’t.

Put a premium on loyalty. Look ahead at the big picture.

Certainly, evaluate your banking relationship. But gauge what you stand to lose vs. what you’ll gain.

You might save money in the short term, but for long-term sustainability analyze whether you’ll ultimately suffer in efficiency and quality.

Understand how you will be hit with internal business risks that minimize profits.

Also, you should consider costs in switching vendors, which include penalties for canceling vendor agreements.

8. Look for savings in buying

Consider all your annual costs – from consuming printing paper and toner – to mobile and broadband. Shop around for bulk purchases and service providers.

Sign up for “first-order” bonuses.

Evaluate all options including whether to pay upfront vis-à-vis paying monthly.

9. Consider new partners, even competitors

You might very well find advantages from partnering with other businesses on projects. In some cases, even a competitor might work.

Contemplate whether to break down a project to focus on your core focus. Then, let other companies focus on the rest of the project.

You might also create a new income by asking your new partners for referral fees by giving them business.

From the Coach’s Corner, here are related strategies:

Cutting Costs: 9 Best Practices to Avoid Making Reactionary Decisions — In chaotic times, it’s common for businesspeople to be fearful and reactionary when they feel they must cut expenses. But entrepreneurs need to be unemotional so that they make decisions that will bolster their objectives. They can take the emotion out of their decision-making — by eliminating stress factors — if their priorities are clearly defined with values.

9 Dos and Don’ts for Best Decision-making — Nine tips if you have difficulty making the best decisions, engage in self doubt after making one, or you’re gun shy because your decisions go awry.

Tips for Strategic-Thinking in Finance: Your Staff, Individuals — Many companies want accountants and finance professionals who are strategic thinkers. But that’s not happening at most companies. Here are tips for managers and employees.

Strategy: How You Can Capitalize on Predictive Analysis — The promise of predictive analysis: Obtain forward-looking insights to innovate and quickly recognize opportunities for growth.

For the Best Cash Flow, Manage Your Inventory Costs with 8 Tips — With proper inventory management, you can lower your expenses and increase your cash flow. For many businesses, that means taking a look at your inventory costs. When your products aren’t selling, obviously, it hurts. Products just lurking and collecting dust in your warehouse are costing you money.

Instead of Group-Think, Promote Creative Thinking — Do you want to ensure your business doesn’t fall into a rut? To use a metaphor, you’ll avoid falling into a quagmire of quicksand if you eliminate group-think from your culture. Here are five strategies to prevent group-think for better performance.

“The price of inaction is far greater than the cost of making a mistake.”

-Meister Eckhart


Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.