How to Reduce Business Expenses Without Losing Your Sanity

Running a small business is tough enough, but when revenue drops, it’s time to make some critical decisions about expenses. In “the Small Business Survival Guide”, Ray Silverstein tackles this head-on, offering insights on how to cut costs, especially those so-called “fixed” expenses. In this post, we’ll break down actionable strategies for trimming payroll, handling tough decisions, and—yes—keeping your sanity (and maybe your team’s respect) intact.

1. Rethinking Fixed Expenses: It’s Not as Fixed as You Think

The term “fixed expenses” can sound like these costs are etched in stone. But as Ray Silverstein points out, just because an expense is “fixed” doesn’t mean it can’t be changed. Now is the perfect time to reassess every cost, starting with the big one: payroll.

2. How and When to Cut Payroll

Payroll isn’t as fixed as many think—it’s highly variable. It’s also likely one of your largest expenses, and if revenue or bookings dip, reducing payroll might become necessary. Is it a hard choice? Absolutely. But in survival mode, it’s all about preserving the business so it can eventually thrive again.

When it’s time to cut, Silverstein suggests “overcutting”—reducing enough staff in one go, if possible, to avoid multiple rounds of layoffs. This stops the constant dread of “Who’s next?” and lets you focus on rebuilding morale as soon as you can.

3. Identifying Your “Tipping Point”

Every business has a financial tipping point: the point when action is no longer optional. This could be based on monthly revenue, cash flow, backlog, or some other critical metric. Setting a clear, objective threshold removes some of the emotional toll from deciding when to reduce expenses. This is vital, as many small business owners tend to wait too long, hoping for a turnaround that may never come.

4. Payroll Reduction Options: More Than Just Layoffs

Most think of layoffs as the go-to solution for payroll cuts, but there are a few other approaches that can soften the blow:

Layoffs: If you must lay people off, use a fair, contribution-based ranking to decide. Aim to keep your most productive employees and, if possible, eliminate underperformers. This isn’t the time for emotional decisions.

Declare a Four-Day Work Week: Cutting the work week to four days can save around 20% on payroll and affect everyone equally. You still retain your team’s skills and could even stagger schedules to keep operations running five days a week.

Reduce Wages Across the Board: A pay cut for all (including management) shows shared sacrifice. Performance-based incentives can soften the blow, allowing staff to recoup lost wages if your company meets revenue goals.

Switch Full-Time to Part-Time: Reducing hours can cut not only payroll but potentially benefits, if you drop below your state’s full-time threshold.

Introduce Furloughs: Rotate unpaid leave days, weeks, or even months. Though challenging, it keeps your employees tied to the company and cuts costs when resources are tight.

Suspend Bonuses: Pausing bonuses might seem drastic, but if communicated well, it can result in substantial savings.

Convert Sales Salaries to Commissions: If you have a sales team, switch them to commission-only pay. This makes payroll a variable cost, directly tied to performance.

5. Small Actions for Big Impact

Beyond the big moves, there are small but effective steps. Encourage employees to use accrued vacation now rather than later—this doesn’t save cash immediately but removes a future financial commitment. Even with small sacrifices, make sure everyone understands it’s temporary. When things improve, show your appreciation by bringing back wages or benefits as you’re able.

Conclusion: A Story of Loyalty and Perseverance

One small business owner took a creative approach during a financial crunch. After cutting to a four-day work week, he made the fifth day optional. Several employees showed up anyway, working for free to keep the company afloat. Eventually, he paid them back for their commitment. The result? He didn’t just save his business; he built a deeply loyal team.

Reducing expenses in a small business is never easy, but it can be done thoughtfully and strategically. Focus on the long-term picture, and don’t shy away from tough decisions—your business’s survival depends on it.

___________________________________________________________________________________________________________________ For a free E-copy of Ray Silversteins book, with knowledge like this and more, send an email to Ray@propres.com