7 ways to cut business expenses

Business expenses are costs incurred in the ordinary course of running a business. They can include everything from payroll costs to office supplies to business meals, and if you’re not careful they can quickly add up and cut a sizable hole in your profits. 

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In this article, we’ll give you some tips for cutting business expenses, no matter how big or small your organization is. These include: 

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1. Make a plan to track company spending
2. Find ways to cut down on recurring expenses
3. Reevaluate travel expenses
4. Tighten up your reimbursement policy
5. Take advantage of deductible expenses
6. Keep an eye on payroll expenses
7. Audit your vendor spending

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Beyond delving into these 7 steps, we’ll also explain when to pursue cost reduction strategies, and how Ramp can help you along in the process. 

How to cut business expenses

Looking to cut your business expenses? Here are 7 things you can start doing today with the potential to drastically improve your company’s cash flow.  

1. Make a plan to track company spending

If you don’t know how your company and employees are currently spending money, it’ll be impossible to identify areas for improvement. By consistently tracking your business expenses and properly categorizing them, you can see which categories are currently taking the biggest bite out of your budget—and which could potentially use a bit of optimization or belt tightening. 

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Tracking your expenses also empowers you to see how these spending trends vary over time. Seeing how your expenses stack up against revenue year over year (YoY) and quarter over quarter (QoQ) can help you understand when spending makes sense and when you should prioritize cutting back. 

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If you don’t have one already, consider investing in a quality expense management solution. 

2. Find ways to cut down on recurring expenses

Over the course of running your business, you’re going to incur a mix of both recurring and one-off, non-recurring expenses. And while it’s important to keep an eye on how both are impacting your bottom line, it’s especially crucial to understand how recurring expenses add up over time. Taking steps now to eliminate or reduce a recurring expense can mean big cost savings when extrapolated out over a year or more. 

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A recurring expense is any expense that you pay on a weekly, monthly, bi-monthly, quarterly, or yearly basis, vs. a lump sum payment all at once. Examples can include:

• Rent and mortgage payments for office space
• Utility bills (electric, gas, water, etc.)
• Property tax payments
• Business insurance premiums
• Software and equipment subscriptions
• Financial services (such as credit card fees)
• Debt servicing (interest payments)

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Once you’ve identified and totaled up your ongoing, recurring expenses, you can start to figure out how to reduce or eliminate some of them. Some common methods for cutting recurring costs include:

• Installing low-flow appliances and light timers to reduce utility bills
• Dropping unused or unnecessary subscriptions and licenses
• Renegotiating your lease or rental agreements
• Refinancing your mortgage or other business debt to a lower interest rate
• Shopping around for lower insurance premiums and financial services

3. Reevaluate travel expenses

Depending on your business model and the industry you operate within, business travel—in the form of meetings with clients, customers, prospects, vendors, suppliers, and even your own staff—can account for a significant portion of your budget. T&E expenses like airfare, business mileage, hotel lodging, meals, and more can quickly add up over the course of a quarter or year.

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With this in mind, rethink what travel is necessary for your business and which may be an unjustifiable expense on your P&L. You might be able to consolidate monthly in-person meetings into quarterly meetings, for example, reduce the number of networking events your business attends, or reduce headcount on business trips.

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Beyond simply eliminating unnecessary travel expenditures, look for ways you can cut down travel spending, like going with more cost-effective transportation and lodging options, or reducing exorbitant per diems. 

4. Tighten up your reimbursement policy

If you reimburse employee expenses, it’s crucial that you have a policy in place for what is and is not reimbursable. If you haven’t done so in a while, it might be worth revisiting, revising and communicating your expense reimbursement policy to your employees. 

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It may be that your team has gotten loose with what they submit and are reimbursed for, so tightening up your policy—and letting your employees know about it—could help you cut down on wasteful expenses. 

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Require employees to submit receipts with any reimbursement requests, and have a process in place to validate expenses before approval. You may be shocked at how much your company is wasting through unnecessary reimbursements. 

5. Take advantage of deductible expenses

While you may not like paying business expenses, there’s a silver lining: you can claim many of them on your business’s income taxes in order to reduce your taxable income for the year. This can in turn meaningfully reduce your tax bill, leading to real savings. 

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That being said, not all business expenses are deductible, and it’s important to know the differences. Examples of deductible business expenses include payroll costs, operating expenses, marketing and advertising, research and development (R&D), and more. Examples of non-deductible business expenses include personal costs, entertainment costs, gifts, fines, and more.

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Whenever possible, lean into deductible expenses while doing your absolute best to avoid non-deductible expenses. 

6. Keep an eye on payroll expenses and staffing

Payroll expenses are often one of the biggest—if not the biggest—expenses that businesses need to account for. This includes salaries and wages, associated payroll taxes (state and federal income taxes, Social Security taxes, Medicare taxes), and benefit expenses  (health insurance, paid time off, retirement savings, etc.). 

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While no one likes to talk about reducing headcount, it’s important to keep an eye on payroll to ensure that you are appropriately staffed with full-time employees. If you’re regularly overstaffing, that means there isn’t enough work to go around and you may be paying workers when you don’t need to be; if you’re regularly understaffing, you may find yourself relying more on expensive overtime hours or, in a worst-case scenario, burning out your most talented staff. 

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You may find it possible to reduce payroll expenses by shifting resources around instead of eliminating positions. Consider automating lower-value, easily repeated tasks while shifting employees into higher-value tasks that are more difficult to automate. There might also be ways to outsource certain administrative or bookkeeping functions to lower cost external provider. 

7. Audit your vendor spending

If your business is like most, you’ve got contracts with at least a handful of software vendors. These vendors play a crucial role in modern business, developing tools that help you run your business more efficiently and effectively. They also often have complex pricing models that make it difficult to understand how much you’re truly spending.

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A vendor audit can help you make sense of this maze. By compiling a comprehensive list of the different tools and solutions you’re paying for, you’ll get a better sense of how often your team uses each tool, how much each tool and seat truly cost, and whether or not you could streamline your stack and save money by removing redundant contracts. 

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While the audit process has traditionally been a manual process, a vendor management software may be able to help you glean insights faster than going it alone. 

When to cut business expenses

While you should always be keeping an eye on how your business spends money so that you can avoid waste, there are certain times that cost-cutting becomes more important. This can include times of economic recession, as well as periods of consolidation within your industry. Cutting business costs during these tough times means your business can still pursue profitability even if you are unable to grow sales.

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When the economy is doing well and your business is in a period of growth, on the other hand, cost control may become less important. That’s because you have other levers that you can pull to boost profits—namely in the form of increased sales and revenue. 

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That said, it’s important to remember that not all expenses are bad expenses. Some are simply a part of doing business. Distinguishing between those necessary and unnecessary costs is key to doing expense reduction right. Cutting the wrong expenses—for example, those that support and facilitate sales or that build brand loyalty and customer trust—can actually hurt your business over the long term.  

Use Ramp to identify and cut business expenses

Identifying areas to cut back doesn’t need to be difficult. By leveraging the automation that Ramp’s robust expense management software provides, you can quickly and easily:

• Categorize expenses across multiple categories
• Limit spending to approved categories with business cards
• Manage employee reimbursements and identify potential abuse
• Automate the collection of receipts 
• Keep track of deductible and non-deductible expenses to maximize tax savings
• Automate expense reports to look for spending trends over time
• Understand vendor spending, including SaaS usage rates

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Interested in learning more about how Ramp can empower small business owners like you to cut costs and keep more profit? Request a demo, or try Ramp for free today.

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