Part 2: 9 Creative Ways of Reducing Your Costs That You Might Not Have Thought Of

Financial “Survive and Thrive” Plan for Entrepreneurs: COVID-19

Before we get to creative ways to reduce your costs that you might not have thought of, it’s important to make sure you are clear on your “new normal”. Yesterday, I published the first article in the Financial “Survive and Thrive” Plan; “Part 1, Figure Out your New Normal” . Basically, these are the steps to figure out what life looks like after customers reduce spending (or go away completely) and cost-cutting measures are complete. If you haven’t done that exercise yet, I strongly suggest going back and completing that exercise first. Clarity on your “new normal” financial picture is absolutely critical to focus on your strategies.

Now that you have a clear picture of your “new normal”, it’s time to buy yourself more time by looking into creative ways of reducing your costs even further that you might not have thought of. We’ll get into buying more time though creative ways to increase revenue (or funding sources) in tomorrow’s article.

Creative ways to reduce your costs that you might not have thought of:

1. Call every supplier you have. Be honest about your situation. The goal is to work out a plan you can both live with. Remember, they don’t want you to go under any more than you do. They might be surprisingly willing to work with you during these hard times so they keep you as a long-term customer. Remember, the goal is everyone suffers a little, everyone survives, then everyone thrives upon recovery. Don’t exaggerate your problems. Don’t take advantage or push suppliers too far if you don’t need to. You need them to survive, as well.

You can negotiate either price reductions or improved terms (or both). It can be for short-term relief or a long-term reset.

Since this is about financially surviving and thriving together, be sure to remember the suppliers that help you through this so you can reward them with long term loyalty.

2. Your landlord is also a supplier and they don’t want empty space. Depending on your landlord’s financial situation (size of mortgage, vacancy rate, etc.), they might be open to deferring or reducing payments during a closure or slowdown in your business. You may have to negotiate some back-end upside or rent increase when things improve. Fair enough: survive together, thrive together.

3. Turn to you employees and contractors to pitch in. They don’t want to be terminated any more than your suppliers and/or landlord wants you to go under. Talk to your staff about the situation and see who is willing to volunteer to reduce hours or unpaid leave in the hopes of having a job when things settle down. Depending on what jurisdiction you’re in, you may even have some more technical options like voluntarily lay off (where you don’t have to pay severance unless you don’t rehire them within the prescribed time limit).

Important note: This is definitely worth a call with an employment lawyer. With the differences in employment law by jurisdiction, you don’t want to do something that will get you in trouble despite your “survive and thrive” intention.

4. How about your corporate taxes? If you’re in Canada, I’d seriously think about immediately stopping payment of tax installments and standing down on paying year-end taxes. Be sure to file your return on time, but hold back on cutting the cheque! NOTE: CRA just released some relief measures for individuals and corporations. The situation is changing daily. Check with your accountant and figure out a plan to conserve cash while staying compliant.

If you’re in Canada and you’re late in remitting your taxes (and you file on time), you will be subject to late fees, but there are no extra penalties and you won’t end up in jail. If 2020 turns out to be a rough year, you’ll end up claiming a loss carry back and getting the money back, anyways. You may as well hang on to it rather than sending it to Ottawa. You may need that money to get you through.

You can also think of delaying your GST remittance. Just remember that there is no GST loss carry back, so this amount will have to be paid at some point and interest will continue to accrue as long as it is outstanding.

The one thing NOT to mess with is remitting withholding taxes (i.e. the money you deduct from your employees’ cheques for taxes, CPP, UI, etc.). This is likely automatically done by your payroll provider, but just in case, DON’T be tempted to use this. You will be held personally liable for this money and it’s not worth the stress of knowing it’s hanging over your head. Keep reading this series and there’s a better way to go than using withholding taxes.

While the same logic applies in the US, be sure to talk to a US tax expert because I am not a US tax expert.

5. You can also go to your bank or other lenders to reduce your monthly burn rate. We all think of our bank as a lender (and I’ll cover that in tomorrow’s article) and source of cash. They can also step up and reduce your burn without actually lending you more. If you’re in deep and have a bank loan of any kind (this includes car loans, equipment loans or any other kind of loan), pick up the phone and make a call. Ask for a payment holiday for a few months where you don’t have to make any payments at all. If you don’t get an entire deferment, you may get either a principal holiday, where your payments are reduced to only the interest component.

If your lender agrees to this, they will likely accrue the missed payments and amortize them over the remaining loan term. Depending on your loan, that might be a pretty small difference to your monthly payments after recovering.

Another option is to ask to expend the amortization period of the loan. If you have two and a half years left on the loan, you might be able to negotiate back up to four or five years, dramatically reducing the monthly costs. Yes, you’ll have to pay more interest in the long run. Just keep thinking: survive and thrive.

6. Negotiating your past due Accounts Payable. As an extension of point 1 above, if you’ve already been experiencing some rough times, you’re probably really up against it now. Have a look at your past due AP. If there are amounts due to suppliers that you no longer use, give them a call and negotiate down the total due and/or ask for long repayment terms. Don’t be so aggressive that they file a claim and push you into a legal situation. Since there’s a chance they’ve already written off the amount, be fair and try and work out a solution you can both live with.

Your goal is to find the balance of offering enough to stave off legal battles but not so much it impacts your ability to make it through this next cycle.

For suppliers that you still need, you can negotiate the past due amount and the ongoing needs at the same time. Depending on how much stress they are under, just be prepared to get a hard no and look for an alternate supplier. Which brings us to…

7. Alternate suppliers. If you’re tapped out with your current suppliers and they aren’t willing to support you in these rough times (some might not be able to afford it, others just might not want to) , there are a ton of businesses looking for new clients right now. Everyone is struggling and a new supplier relationship with a financial “survive and thrive” mindset might be the magic pill you need to survive and for you both to thrive on the rebound.

8. In addition to reviewing your expenses (point 1 above), get a printout of your entire General Ledger for the past year. This will show every transaction and be a long (and painful) report. Your goal is to scan down it looking for things you missed in the supplier expense review, but, more importantly, the recurring credit card charges that are small and might slip under the radar. There are certainly recurring charges you can cancel and save a few dollars, which will add up over time.

Keep an extra sharp eye out for those forgotten expenses that renew annually that might be renewing in the next month or two. Get in there and cancel before it hits your credit card!

9. There’s always the good old-fashioned barter system. Do you have a service or product you could offer as a trade to get a need filled that would otherwise cost you money? It might be worth considering how a trade could extend your runway, even if only a little bit. Of course, you’ll be sure to self assess the value for tax purposes, right?

I know things might seem bleak; especially if you did the “new normal exercise” and it looked ugly. Take some time and drive further cost cutting options. Once you have a sense of how much more savings you can drive, have another cut at your “new normal”. How much more time did this buy you? Are you in the black yet? Are you ready to financially survive and thrive? Have you built some amazing partnerships with suppliers, customers, lenders and employees and are now starting to see some clear skies?

Stay tuned for Part 3, where I’ll share some creative ways to drive additional funding to extend the runway even further.