It's not how much you make, it's how much you keep.

That old adage applies equally as well for individuals and for small businesses. Managing costs is key to having a healthy cash flow and a profitable company. Entrepreneurs should constantly monitor the financial state of their businesses to determine cost structures that may be draining on profitability.

Here are a five tips to cutting costs:

1. Renegotiate Terms with Creditors
Consider bargaining with vendors to get better deals. Some companies offer discounts of ten percent or more for advance payment. If you are ordering $10,000 worth of inventory or more, the savings will be greater than $1,000.

2. Reduce Staffing During Slow Periods
If possible, try to reduce the number of full-time staff you employ. Part-timers usually are not eligible for benefits and are accustomed to having flexible hours. If you realize that you are over-staffed during slower periods, it is easier to send part-time workers home because most of the time they are not salaried employees. Think carefully before you add a full-time worker. Assess whether you truly have enough work to keep that person busy for 35 or more hours a week.

3. Sublet Office Space
If you don't need a lot of room, see if you can rent space from another business that has an extra office available. Why maintain a lease of your own when you can sublet the exact amount of space you need--possibly at a reduced cost? Conversely, if you have extra space available at your own operation, see if someone will sublet from you.

4. Consider Leasing or Buying Used Equipment
Not every business needs shiny new equipment. Restaurants go out of business all the time. If you are opening a new eatery, you should be able to get fully functional and reliable used kitchen equipment from a broker. If you need or prefer new equipment, consider leasing it instead of buying it outright. It is a good way to avoid overspending, and the company you lease the equipment from will be responsible for its maintenance. This is a benefit because many times, the warranty on new equipment is only a year.

5. Reduce Your Cost of Capital
Many entrepreneurs who borrow money to launch their companies do so at a high interest rate because they had poor credit history or perhaps no personal credit history at all. After six months of operation, if you have proven to be a reliable payer--meaning you pay your debts on time and in full--you will be in a good position to find lower interest rates. By proving your ability to pay, you could reduce your current high cost of capital.

There are many free tools available online to assess one's current financial status. One is called BizAnalyzer, a tool that Biz2Credit developed that enables you to input some of your financial numbers and get an accurate pulse on the financial health of your company. By cutting your cost structures, you can improve profitability, and tools such as BizAnalyzer can help you determine whether the actions you are taking are actually working.

Published on: Feb 18, 2015