The pandemic has forced countless businesses to reevaluate their spending and look for ways to save money. As you plan to trim the fat, however, it's important to make sure you are not making moves that will hurt your business in the long run.

1. Moving to a cheaper location

One way a small business might look to cut costs is by relocating to a building that is more affordable. While this can be a wise move, you also face the possibility that customers will not follow. It really depends on your business, as well as your clientele. How big of a role does your location play in the amount of business you get? Where is your competition located? Is the new location in an area that you expect your customer base to travel to? If so, how realistic is that expectation? If business improves and you need to expand again, you’ll incur another round of moving costs.

These are the kinds of questions you'll need to think hard about before making a decision as drastic as moving. While a relocation can certainly save you significant money, and may even bring you an expanded customer base, you'll need to be confident that it won't work against you.

2. Not paying for technology

Technology evolves very quickly, and as a result, it can be extremely intimidating for businesses to keep up with the latest trends. The problem is that falling behind gives your competitors a leg up. Deciding outright that tech isn't worth the money can be a mistake that ends up costing you more in the long run.

"For instance, automating tasks allows companies to do more with less," explains Catherine vanVonno, President and CEO of 20four7VA.1 "That is, you don’t need to hire more people or pay for extra hours if you automate certain processes such as customer and internal communications and bookkeeping."

Many business technologies are designed to improve productivity and save you money, and if you are not taking advantage while the competition is, you may have a hard time providing a better product and experience.

3.  Layoffs

Layoffs are sometimes unavoidable, but if you can find other ways to save money, your business will likely be healthier for it. When you lay off an employee, you are giving up countless hours of training and on-the-job experience that is extremely valuable. The better the worker, the more of a blow this becomes. Layoffs can also lead to a decrease in morale and may cause remaining workers to start looking for new jobs, fearing that they might also be laid off. Before you know it, you may be without the talent you need to get by.

4. Not spending enough on marketing

Having a great product may seem like the most important part of having a successful business, but in the end, it doesn't matter how great it is if nobody knows about it. Effective marketing can be extremely expensive, especially in competitive markets. If you focus the majority of your efforts on paid promotions, the dollars can quickly add up.

The reality is that if you don't get in front of people, they are unlikely to find you, and it's harder to capture customer attention than ever as social media feeds and apps constantly push content in front of them. Unfortunately, it's very difficult for a business to break through the noise without paying to do so.

5. Not paying your employees well enough

If you want to have quality, talented workers on your staff, you're going to have to pay them what they're worth. Cutting pay or trying to hire at too low a salary is likely to backfire on you. It may save you money in the short-term, but workers are as savvy as ever about the job market and how other companies compensate their employees. The internet has made it easy to research as well as network, and you may find yourself blindsided as employees who feel they've been short-changed find work elsewhere.

6. Not thinking about costs on an ongoing basis

It's easy to look at cost-cutting when you have no choice, but a better strategy is to think about ways to reduce costs all the time. The more you can stay on top of unnecessary and frivolous spending, the healthier your company will be, and the less likely it will be that you'll have to take drastic measures. Make frugality a part of your company culture. Just be sure to spend where it truly counts. 

Wherever you decide to make cost reductions, be sure to think carefully about the likely consequences of pulling your dollars. Consider how your business is likely to be impacted and decide if the savings are worth the risk.

1. https://articles.bplans.com/ineffective-cost-cutting-strategies/

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank. Nevada State Bank is a division of Zions Bancorporation, N.A. Member FDIC