How to cut business expenses

No matter the size of your business, expenses can pile up fast—from payroll and rent to software subscriptions, apps, and travel. If you're looking to protect your margins and improve profitability, a strategic cost-cutting plan can make a big impact.

If it’s time to start cutting business expenses, we can help. In this article, we offer tips for business expense reduction across companies big or small:

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

Cost reduction strategies

When you’re looking for cost-cutting measures for your business expenses, these are seven initiatives to help you start making informed decisions today. Every business is different, of course, but we hope this is a starting point for you, allowing you to see improvements in your company's cost savings, cash flow, and bottom line.

1. Track and analyze your spending patterns

If you don’t know how you’re currently spending money, it’s impossible to identify areas of cost reduction. However, by consistently tracking your business expenses and properly categorizing them, you will quickly identify which categories take the biggest bite out of your budget and areas that could use some optimization or belt-tightening.

Tracking your expenses also empowers you to see how these spending trends vary over time, especially if you invest in an expense management solution. Comparing your expenses to revenue year over year (YoY) and quarter over quarter (QoQ) helps you understand when spending is sensible and when to decrease business expenses to improve your profit margin.

2. Find ways to cut down on recurring expenses

Over the course of running your business operations, you’re going to incur a mix of both recurring and one-off, non-recurring expenses. A recurring expense is any expense that you pay on a weekly, monthly, bi-monthly, quarterly, or yearly basis, as opposed to a lump sum payment all at once. Examples can include:

• Rent and mortgage payments for office space and real estate
• 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)

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

• Installing energy-efficient and low cost 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 cost insurance premiums and financial services

3. Reevaluate travel expenses

Business travel can account for a significant portion of your budget. This can take the form of meetings with clients, customers, prospects, vendors, suppliers, and even your staff. T&E expenses, like airfare, business mileage, hotel lodging, and meals, can quickly add up over a quarter or a year.

With this in mind, rethink what travel is necessary for your business. For example, you can consolidate monthly in-person meetings into quarterly meetings, reduce the number of networking events your business attends, or reduce headcount on business trips.

Beyond simply eliminating unnecessary travel expenditures, look for ways to reduce travel spending, like choosing more cost-effective transportation and lodging options, or reducing exorbitant per diems.

4. Tighten your reimbursement policy

If you reimburse employee expenses, you must have an expense policy in place for what is and is not reimbursable. You should regularly revisit, revise, and communicate your expense reimbursement policy.

Tightening up your policy—and letting your employees know about it—can help you cut down on wasteful expenses. Be sure to require employees to submit receipts with any reimbursement requests and have a process in place to validate expenses before approval. You can also streamline spending by issuing company cards with pre-set limits—see how corporate credit card tools can help you enforce spending policies and reduce out-of-policy expenses.

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 as deductions. In turn, this can have a meaningful impact on your tax bill, resulting in real savings.

But not all business expenses are deductible. And, so, it’s essential to know the differences. Examples of deductible business expenses include payroll costs, operational costs, marketing and advertising, and research and development (R&D). Examples of non-deductible business expenses include personal costs, entertainment costs, gifts, and fines.

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 most significant expenses that businesses need to account for. This includes salaries and wages, as well as associated payroll taxes (state and federal income taxes, Social Security taxes, and Medicare taxes), and benefit expenses (health insurance, paid time off, perks, and retirement savings).

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, it means there isn’t enough work to go around, and you may be paying workers when you don’t need to. And if you’re regularly understaffing, you may find yourself relying more on freelancers, expensive overtime hours or, in a worst-case scenario, burning out your most talented staff.

You may be able 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 functions that are more difficult to automate. There may also be ways to outsource certain administrative or bookkeeping functions to reduce your overhead costs.

7. Audit your vendor spending

You probably have contracts with at least a handful of software vendors 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.

By conducting a thorough vendor audit that serves as 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, negotiate better prices, or remove redundant contracts.

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

When to cut business expenses

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 expenses 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.

For instance, cutting travel and training budgets may reduce costs in the short term but can weaken your sales pipeline or employee performance in the long run.

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.

Is decreasing costs always a good thing?

Not always. While reducing expenses can improve profitability and free up cash flow, cutting the wrong costs can hurt your business in the long run. For example, slashing investments in marketing, employee development, or customer service might save money upfront—but it can lead to lost revenue, reduced morale, and weakened customer relationships down the line.

The key is to make strategic cost reductions—identifying inefficiencies, eliminating waste, and reallocating resources where they can drive more value. Before cutting, ask yourself: Will this expense help us grow, retain customers, or operate more efficiently? If the answer is yes, it may be better to optimize rather than eliminate it entirely.

Smart cost-cutting strategies are about doing more with less—not just doing less.

Use Ramp to identify and cut business expenses

Figuring out how to reduce expenses in business doesn't have to be a nightmare, and cutting costs shouldn't mean sacrificing growth. 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

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.