The key to cutting business operating costs during a recession is to avoid cutting in places that will be counter-productive in the long run.

I’ve seen a number of articles lately that show ways that people can cut some costs in their personal expenses in order to save money. Things like making coffee at home and skipping the latte (not so good if you are a Starbucks shareholder).

Most of the lists I saw had little or no bearing on businesses, particularly small businesses. I’d like to make up for it with the following list of ways that businesses can trim some “fat” during recessionary times.

Marketing and Advertising

Traditionally, when times are rough, businesses cut their advertising costs first. This can be somewhat counter-productive, because advertising is one of the ways that you can get new business. The trick here is to work on ways to get more for your money, or to only use the advertising that you really need.

• Google Adwords – I’ve heard that there has been a drop-off in the cost per click for Adwords lately. If you rely on Adwords to drive business to your website, consider adjusting your price per click downwards. Do you absolutely have to be the first one on the list? Sometimes the second or third listing gets more clicks, and costs less. That said, Adwords is still the most targeted form of advertising that is available to most businesses.
• Directories – Some businesses rely heavily on advertising in phone directories (“yellow pages” or “white page”) for their customers. Those businesses have more bargaining room than usual when it comes to renewing their ads. Consider going with less / smaller ads, or making your colour ad into a black and white one.

Rent

• The price per square foot for rent is down in most cities in North America. If your rent is up for renewal, see if you can get your landlord to reduce their rates. Otherwise consider moving and locking in for a few years. Rent is one of the largest “fixed” costs that businesses face, and this is a golden opportunity to reduce it.
• While you are at it: do you really need such large facilities? Think long and hard before you answer.

Staffing / Salaries

Having been laid off a few times in my life, I’m not a fan of suddenly downsizing. Layoffs should be an absolute last-ditch attempt to save a company from bankrupcy, not a way to maximize profits. There are a number of ways you can save on staffing costs during a recession though, not all of them immediately obvious.

• Give bonuses, not raises. If you happen to have a really good year, despite the economy, pass back some of the joy to your staff via bonuses, rather than salary increases. A salary increase tends to be permanent. A bonus lets your staff participate in the windfall that they helped generate, without tying you to the same amount the next year if things aren’t as good.
• Interns: I’ve had great experiences in the past “hiring” interns from high schools or college co-op programs, particularly over the summer. Its a great way for them to get experience, and it can be very helpful to boost your staff during peak seasons, without raising your salary cap.

Equipment

• This could be an excellent time to shop for bargains on capital equipment. Many manufacturers are cutting their margins to clear out inventory. This doesn’t just effect computer manufacturers – even heavy equipment is selling at a discount at the moment.
• Look for second-hand deals. I know of several companies specializing in second hand manufacturing equipment, and many of them are doing great business right now. They’re getting used equipment from companies that are either cutting back their lines, or going under, and reselling it. Even at a fraction of the price of new equipment, they’re still able to make good money. Conversely, if you are looking for equipment, you can get it for a big discount if you buy used.

There are a number of areas I didn’t touch on here, including the manufacturing process. I don’t think I have sufficient experience in those topics to comment usefully. As usual though, I’d be interested to hear if anyone has other ways to cut costs.