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cutting indirect spend

5 Ways to Cut Back on Indirect Spend

We might be in the midst of the post-COVID economic recovery, but that doesn’t mean the pain is over for small businesses. For many, reducing costs is a necessary reality – and cutting back on indirect spend is a way to do that without clipping into critical operations.

“Two years into the pandemic, more than half of small businesses report being in fair or poor financial condition,” reports nonprofit organization SCORE. “Most small businesses have not applied for loans, even though 54% of entrepreneurs who didn’t apply for loans needed funds.

“Of the small business owners who did apply for outside financing, 63% used those funds to meet basic needs such as wages, rent and inventory costs, rather than to grow their company.”

Clearly, the pinch is still on. And for many small businesses, outside funding might be an already exhausted option or out of the picture entirely.

If that sounds like the situation your company is in, cuts might be an unfortunate last resort. But you can still trim in a way that will save costs without crippling your business. And that involves cutting indirect spend.

What Is Indirect Spend?

“Indirect costs” are any costs that don’t directly pertain to what your business does to generate revenues.

If you build widgets, the input costs, production machinery and line workers’ salaries are all direct costs, as they all go into making the final product.

However, office rent, your internet connection, printer ink and a marketer’s salary are all examples of indirect spend. That doesn’t mean they’re not important – they are, and they’re very much necessary to keep your business running. But oftentimes, there are ways of trimming these expenses when times are tight without making a material dent in your core operations.

Here are a few ways to do that:

Ways to Cut Back on Indirect Spend

Buy in Bulk

Volume purchasing isn’t anything novel, but it works. Buying a year’s worth of pens rather than a month’s will be more expensive up front, for instance, but it will save you in the long run.

And you can take this philosophy much farther. Consider purchasing more of your supplies from a single vendor in exchange for a volume discount. Or better still, find similar (but non-competing) businesses that you might be able to pool resources with, leveraging your collective purchasing power for better deals.

Buy Used

It’s possible to cut indirect spend even while trying to grow the business. Just buy used.

Whether you need something as large as a delivery truck or a company car, or something as relatively small as cutlery for your restaurant, you can buy previously used items at a fraction of what they would cost new. There are trade-offs, of course. Used equipment, whether it’s a vehicle or technology, typically doesn’t come with a warranty. And it might not last as long. But the cost savings can help you expand and build a profit, allowing you to buy new later down the road.

Use Contractors and Freelancers

Full-time employees require more than just a paycheck – they require benefits, training, office space and other resources. It’s a worthwhile investment when you have a full-timer’s worth of work to offer someone. But it can be an unnecessary drag if you’re paying someone for 40 hours a week of work when you only need them for 20.

It’s times like these that contractors and freelancers make sense. Whether it’s a one-time design project or ongoing outsourced CFO services, paying for only what you need, when you need it, makes a world of sense.

Encourage telecommuting

Telecommuting offers a lot of cost savings. For every employee working part- or full-time from home, that’s less office space, smaller utility costs and fewer office supplies needed to support those workers. Moreover, telecommuting is a benefit that workers are increasingly seeking out. Working from home saves workers’ time and commuting costs. That can be a powerful perk that might help you lure skilled workers from businesses with tighter office policies.

Go Paperless

Printer servicing, paper and ink are no small costs. Going paperless can reduce these costs while providing other benefits. Ways to cut out paper include adopting e-signature services, relying on accounting apps to digitally invoice, and paying bills electronically versus through traditional mail.

Need Help Righting the Ship? Call Us

Keeping a small business alive during trying times is a difficult task, but it’s an achievable one. Sometimes, you just need a little help. McManamon & Co. provides a wide array of consulting services to small and midsize businesses, including helping companies determine the best financial path forward.

If you’d like to learn more about what we can do for your firm, call us at 440.892.8900 or contact us online today.

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