Businesses exist to make profit, and there are two ways to do that: increase revenue or cut costs. Cutting costs is sometimes an easier option for many small business owners, especially now when business costs are increasing rapidly. The rule of thumb for entrepreneurs is to cut on any unnecessary cost whenever possible.

Businesses sometimes fail when they grow too rapidly. They lease too much space, buy top-of-the-line equipment, hire too many people or invest too much in advertising too soon. Knowing what the most common costs and mistakes are can help business owners control these costs better.


According to the Wall Street Journal, small businesses spend more than $6,000 yearly on health insurance for each employee. Employer health care cost have risen an average of 15% over the last few years for an average of $700 per month per employee. As a result, almost half of small businesses provide no health care coverage for their employees. Health care premiums are continuing to grow and small business owners need to look for alternatives to lower these costs. One thing business owners can do is to negotiate with their insurance carrier, shop around for cheaper plan, deduct insurance charges as business expense or increase deductibles and employee’s contribution.

Energy Costs

Rising energy costs have skyrocketed in the last couple of years and small businesses are finding it hard to fight these costs. Rising costs of gas and oil are creating revenue decrease for these businesses and additional energy taxes. One way to deal with these growing costs is look for an alternative energy resources and solutions by going green and cutting on your business’s energy cost.

Another solution is to allow employees to collaborate virtually and to work from home. Many people are working in a remote-mode today and small businesses can encourage employees to work on a project via document-sharing platforms or by going on the cloud.

Rent or Lease of Space

Rent costs can hit business’s bottom line pretty hard, but there are options that can take down these costs. Before deciding on a location or a size for office, it’s always good to consult local business owners. Another solution is to go for a smaller size office and develop the remote-work mode where employees that can work or give services from home using teleconference and collaborating online. Going for a cart, kiosk, pop-up store or a temporary space can work for entrepreneurs or small businesses who want to start small. If selling a product, online store can be perfect for minimizing space-rental costs. Converting to home-based office is another way to save on rent costs.


Under the tax law, most expenses incurred in businesses are deductible, while most income is taxable. There are ways to lower your tax costs and it’s important to use any deduction you can for that. First thing a business owner must do is to keep current with law changes. For example, tax breaks are sometimes being created based on changing conditions such as Catherina in 2005 or the Stimulus Act in 2008 so keeping on top of things is important. Adding to employee’s benefits such as insurance instead of raises can also cut on tax costs. Businesses that start small need to think of changing the structure of their company when it grows in order to gain tax advantages. Being on top of things is important because many new tax provisions aren’t properly utilized by small businesses.


It depends on the size of a company, but employee’s wages usually take a big chunk out of a company’s capital. Instead of letting people go and cutting down on workforce, business owners can offer alternatives such as a four-day work week or using independent contractors, temps or interns until business picks up. Business owners need to remember that employees are going through tough times as well and might be flexible to any temporary changes so keeping them in the loop is important.

Office Equipment

Many entrepreneurs invest large sums in buying top-of-the-line office equipment and furniture, but having the right chair is not a guarantee for business success. First, determine what your real needs are before purchasing anything. Ask yourself what equipment you need to work efficiently. Opt for used, refurbished equipment or trade with other business owners. Negotiate with vendors and check local papers, business closeouts, auctions, and bidding-based sites. You can also rent office equipment.

Inside the office, go paperless. Paper, stamps, ink, faxing and mailing all involve small charges that eventually add up to a scary bottom line. Go virtual wherever you can. Use digital invoices and payments for customers, scan and email documents, and correspond with customers via emails.

Phone costs in the office can also be cut. If you are working from home, consider going for a residential line. The charge for business line is higher than residential line. Use cell phone, virtual phone lines, or VoIP.


Online marketing can be a perfect solution for cutting on high advertising and marketing costs. A lot of businesses eliminate advertising when they need to cut on expenses, but it’s a mistake because advertising and marketing are a must. When starting small, you have to think on how to get your marketing-buzz for minimal cost and for maximum effect. Start a business blog, use social media sites for marketing or be involved in community or industry events to get wide exposure.


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9) Photo credits: Business Pictures