Considering Budget Cuts? Small Business Owners Share Their Insights on 4 Key Areas

Are there parts of your budget that should rarely, if ever, be cut?

It’s a question that many business owners many find helpful asking because businesses are always being tasked with tinkering with the budget. Shareholders demand it. Economic times demand it. Random circumstances demand it. So as you think about where to trim, or where to add to the budget there, are there areas you should consider to be off-limits for a cut?

There's no one-size-fits-all answer to this question – each business is different, and needs to make the decisions that are right for them. We asked a handful of small-business owners to offer their insights on what the cut calculus looks like for four key areas – and what questions you might consider asking yourself before committing to a trim:

1. Marketing

Marketing is often the first thing to go in a budget if the economy looks dodgy – just ask anyone who works in marketing.

But Tim Murphy, CEO of Boomers Parks, a Boca Raton, Florida-based chain of six family entertainment centers and two water parks, says, “I would not cut marketing under any circumstances. Many business owners and leaders cut marketing first, but that does not work. They will realize too late that what they really needed was marketing to bring customers in, but have no way to reach them without marketing.”

Dan Oliver, founder of Dan-O’s Seasoning, a seasoning blend, believes similarly. “One place we never cut our budget is in content creation,” he says, speaking of content such as the company's themed cooking recipes and videos. “We have always been a social brand.”

Oliver says that he started out going to trade shows across the country when promoting his seasoning. Once the pandemic hit, that became pretty much impossible, but social media has really helped with sales.

“Our content creation has earned us over 3.3 million followers and over 49.3 million likes on TikTok, fueling our retail expansion to over 13,000 stores nationwide,” Oliver says.

If You Need to Make Cuts

If the marketing you’re doing doesn’t seem to be making much of an impact, Murphy suggests redirecting your marketing dollars to a different form of advertising.

“Don’t cut marketing going forward as it drives not only this month's sales, but future sales and overall brand awareness,” Murphy says.

2. Safety

Keeping your safety budget robust is important for any business, but especially one where you have a lot of people (customers or employees) on the premises, or if you have employees out in the field doing potentially dangerous work.

“We make safety one of our top priorities with our core values, handbook, safety meetings, safety council meetings, and as a management team. We would not delay any expenses to repair or fix an item,” Murphy says. “It is not only the right thing to do to save on money in the future, due to fewer expenses, but it’s the right moral thing to do for each guest and team member alike.”

As for the money you’re saving, Murphy says that the investment into safety means that with any luck, you’re not spending future revenue on expenses such as claims for worker compensation, insurance claims, potential lawsuits, and loss of productivity.

If You Need to Make Cuts

Look for ways to be safer more efficiently, which may save your business money in the long run. For instance, if there is an app that can collect important safety data for your business more easily than by hand, that may reduce your costs. 

3. Quality

It’s true that in some certain situations, you can get away with trimming and tweaking. If you own a bed and breakfast that always puts mints down on the pillow, and you slash your mint budget, it’s (probably) a safe bet that you won't get complaints.

Don’t cut marketing going forward as it drives not only this month's sales, but future sales and overall brand awareness.

—Tim Murphy, CEO, Boomers Parks

But reducing the quality of your product or service is a slippery slope, and it can even backfire on your budget, says Wendy Shore, a certified public accountant, consultant, and serial entrepreneur based in Delray Beach, Florida.

“When you are a seller of products, the one absolute must not cut is the quality of your products,” Shore believes. “A product with poor quality can lead to customer dissatisfaction, negative reviews, and a loss of repeat business."

If You Need to Make Cuts

If something’s gotta give in the budget, you’ll want to find something to pare back that has nothing to do with the services or product you offer, unless there is a way to shave prices and produce something better. And if there’s simply nowhere in the budget to reduce, well, this is why many companies ultimately raise prices.

4. Payroll

Nobody wants to let an employee go, and, yes, some businesses find it unavoidable. But if you feel like your business is well run, reducing your staff can hurt morale, which can lead to reduced profits. 

If You Need to Make Cuts

Your first instinct should probably be to hold off on hiring for awhile, rather than firing. Your second instinct should be to put your staff to work on projects that will generate growth. If you feel you must trim staff, perhaps you can opt for cutting employees in areas that aren’t yet high-growth sectors in your company. 

Shore says that she used to be a part owner in a restaurant and that when the majority investor died and their family took over, they put the kitchen staff on hourly wages instead of salary and, on top of that, began purchasing inferior products.

Shore sold her shares in the restaurant and says that within six months, the company saw a 12% reduction in profits – and the payroll actually increased, “because the new hourly personnel couldn’t perform the way the original staff did,” she says.

What Can You Cut?

You may wonder if there’s anything left in a budget that companies can trim out without destroying their company. The answer may be: a project.

Sometimes companies will trim entire projects out of their budget, and that can be a fairly simple way to reduce economic pain, especially if no jobs are lost. If you’re starting a new potential money-making project, and the money isn’t there right now, put it on ice and get rid of it entirely.

That said, even with projects, be careful, warns Andrew Amann, CEO and co-founder of NineTwoThree Venture Studio in Danvers, Massachusetts.

Amman points out that you really want to look at the project and the reason it was started.

“Either the project was nice to have and cutting it results in allocating resources to more important value projects – a good thing – or the project is required to innovate the company to the next level and cutting it will lead to the future of the company being in jeopardy,” Amann says.

If You Need to Make Cuts

Amann recommends giving any project that your company is starting an “impact score.” That way, if you are facing cuts, you’ll have a better idea whether you can justify keeping the project or not. Those with a low impact score can be shut down, and projects with a high-impact score can be kept to protect future growth.

So how do you calculate an impact score? That’s up to each individual company, Amann says, and it depends on each business’s situation and its goals. But he says that a simple way to look at might be to look at each project your company is working on and classify them by risk, reward, value, cost, and time.

“Just rank them in order of impact,” Amann says. “Ten being the highest and one being the lowest.”

“When times are tough, we will cut off the ones first. And no matter how dire the situation is, we will always march toward our level tens,” Amman says.

Trimming a budget is tricky, and for good reason. Cutting it can mean removing some of the pieces of the puzzle that got you from there to here. So if you’re going to pare down your budget, think your choice through thoroughly and cut mindfully. 

Photo: Getty Images