According to Brainyard’s Summer 2020 Finance Priorities Survey, 71% of participants identified “finding areas for savings” as a key objective for finance teams. This figure marks a notable increase from 61% in spring 2020 and 53% in winter 2019.
It’s evident that cost management has become a crucial focus for businesses, especially in recent times. Yet, the process of cutting expenses is rarely straightforward. The challenge lies in reducing costs without compromising product or service quality, employee morale, or growth potential.
These challenges are at the forefront of Michael Hammelburger’s work. As the CEO of the Expense Reduction Group, Hammelburger specializes in guiding companies to cut costs by examining overlooked areas that leaders may not initially consider.
If your company is looking to tighten its budget, consider exploring these insights. Here are five common sources of unnecessary expenses identified by Hammelburger, along with practical tips to curb the waste.
5 High-Impact Areas to Trim Your Budget
1. Healthcare
Healthcare costs continue to surge, placing a growing burden on both employers and employees. According to a Kaiser Family Foundation survey, family plan premiums rose by 5% in 2019, pushing the average cost of employer-sponsored family coverage to over $20,000. Typically, employers covered 71% of this expense, with employees responsible for the remaining portion.
The outlook only grew more concerning with a Covered California analysis forecasting national premium increases of 4% to as much as 40% — or more — in 2021, driven significantly by the COVID-19 pandemic’s effects.
“Healthcare is undeniably costly,” Hammelburger noted. “It represents the biggest administrative expense after payroll. Reducing that by even 20% can be transformative.”
However, cost-cutting shouldn’t come at the expense of quality coverage, as this can undermine efforts to attract and retain skilled professionals. Instead, The Bottom Line Group advises implementing strategies to manage healthcare costs without sacrificing care quality. These strategies include:
1. Utilize Healthcare Data and Analytics
Assess historical healthcare claims, referrals, and outcomes to identify patterns. By leveraging this data, employers can guide employees toward top-performing providers, optimizing both care and cost-efficiency.
2. Implement Telemedicine Solutions
Telemedicine offers not only convenience but substantial cost savings. Employers can save up to $500 per episode for common health concerns, potentially reducing total annual healthcare expenses by up to 11%. COVID-19 has also normalized video consultations, making this option more acceptable to employees.
3. Adopt Medical Case Management
Medical case management ensures that employees receive appropriate care at the right time and place, helping to control costs while maintaining care standards.
4. Introduce Reference-Based Pricing
This approach sets predetermined prices for specific healthcare services, minimizing cost variability. Without it, pricing for identical services can differ significantly, impacting overall expenses.
5. Encourage Price Comparison for Services
Motivate employees to shop around for non-urgent healthcare services. For example, visiting a specialized clinic might not be necessary for treating a minor sprain. Some insurers offer comparison tools to help employees find suitable providers at the best price. If your insurer doesn’t provide these tools, it’s worth inquiring why.
By implementing these measures, companies can effectively manage healthcare costs while maintaining quality, ensuring both financial health and employee satisfaction.
2. Shipping Costs
While often overlooked as a potential source for savings, shipping represents a substantial expense for many small businesses. Hammelburger estimates that 80% of companies are overpaying for shipping — a cost that can be reduced with some strategic steps.
Comparison Shopping
Are you sure your business is using the most cost-effective shipping option for each package and destination? With a variety of carriers such as USPS, UPS, FedEx, and a number of smaller, regional providers, costs and service levels can vary widely. Evaluate your options regularly to ensure you’re not missing out on better rates. This is especially relevant for businesses that handle returns, where significant savings opportunities can often be found.
Negotiating Rates
Leverage your shipping volume to negotiate better rates. Shipping companies set tiered pricing schedules based on how much a company ships — the more you ship, the better your rate. If your business sends out a large number of packages, carriers are often willing to offer discounts to retain your business. Remember, these discounts are typically not advertised, so you’ll need to initiate the conversation to secure lower rates.
Online Shipping Discounts
Taking your shipping payments online can yield impressive savings. The USPS offers online postage discounts, and platforms like Endicia and Stamps.com — both USPS-authorized providers — sell postage at rates lower than those available at physical post office locations. Additionally, if you utilize USPS Priority Mail or Priority Mail Express, check out Express 1, a partner that provides discounted shipping rates.
Third-Party Insurance
Opting for third-party insurance instead of carrier-provided insurance can reduce costs significantly. Carriers typically charge approximately 85 cents per $100 of insurance coverage, with a minimum fee of $2.55. In contrast, third-party insurance providers charge around 55 cents per $100, leading to considerable savings over time, especially for businesses shipping high volumes.
Smart Packaging Choices
Packaging can be another hidden cost that adds up quickly. Review your packaging practices to ensure you are using the right size for each shipment. Carriers base their fees on size, weight, and destination, so even slight adjustments to reduce package dimensions and weight can result in meaningful savings. Additionally, using carrier-provided packaging can help you avoid dimensional fees, which apply when a package exceeds certain size limits. Major carriers such as USPS, FedEx, and UPS also offer complimentary shipping supplies that can further cut down on costs.
Bulk Prepayment
Buying in bulk can lead to savings beyond just office supplies. Purchasing shipping supplies and prepaid labels in bulk can unlock discounts of up to 20% with major carriers like FedEx and UPS. This strategy can be particularly useful for businesses with predictable shipping volumes, allowing them to secure lower costs upfront.
Implementing these practical strategies can help businesses reduce their shipping expenses significantly without compromising service quality.
3. Workers’ Compensation Insurance
Similar to health insurance, workers’ compensation insurance is essential yet often overpriced. In fact, Hammelburger estimates that 75% of businesses are paying more than necessary for this coverage.
Prevention and Safety First
The most effective way to control workers’ compensation costs is to prevent workplace injuries from occurring in the first place. This involves implementing proactive safety measures, comprehensive hazard prevention strategies, and employee training programs. An investment in a robust safety culture can significantly reduce the likelihood of accidents. Additionally, having a structured “Return-to-Work” program can aid in safely reintegrating injured employees, helping to manage and lower insurance expenses.
Policy Review for Accuracy
Ensuring your workers’ compensation policy is accurate is crucial. Payroll reporting mistakes can be costly—under-reporting could trigger a severe audit, while over-reporting unnecessarily reduces cash flow. Regularly reviewing payroll data for accuracy ensures you’re only paying for what’s required.
Verify Class Codes
Workers’ compensation class codes, which are assigned to categorize job roles, are another area where errors are common. Incorrect classification can lead to substantial overpayments or fines. Whether these errors occur by accident or are overlooked, they can have significant financial implications, and in some cases, they may result in legal issues.
Industry Error Rates and Ratings
Mistakes aren’t exclusive to employers. The insurance industry itself has a “mistake ratio” of over 27%, according to EHS Today, a publication focused on occupational safety and health. One critical area to watch is the Experience Modification Rating (EMR), which reflects a company’s safety record and directly impacts premium costs. Inaccuracies in this rating could mean your business is being charged more due to errors on the insurer’s part.
The Role of the Finance Team
Identifying and correcting these errors requires dedicated time and expertise. If your insurance costs seem unusually high, Hammelburger advises enlisting an independent third-party auditor to examine your policy. These audits can uncover hidden discrepancies that may be inflating your premiums.
Leveraging a Professional Employer Organization (PEO)
For small to midsize businesses, partnering with a Professional Employer Organization can be a practical solution to optimize workers’ compensation expenses. PEOs offer access to economies of scale, which can help streamline cash flow by reducing or eliminating initial down payments for insurance and assuming some of the administrative burden involved in managing workers’ comp policies.
By adopting these measures, businesses can mitigate unnecessary expenses and improve their overall financial health while maintaining essential coverage.
4. Expensive Contracts
Leased items and recurring services like office equipment, telecommunications, and other contractual obligations might seem unchangeable. The word “contract” often implies rigidity, yet there are often overlooked opportunities to cut costs within these agreements.
Uncovering Hidden Savings
Begin by thoroughly reviewing existing contracts for services and leased equipment. For example, an audit of telecom expenses might reveal unused phone lines or devices still assigned to former employees. As remote work has become more common, assess whether the number of printers, copiers, and similar office equipment is still necessary. A reassessment of these assets can yield substantial savings.
Proactive Contract Management
When analyzing contracts, note their end dates and set reminders several months in advance. This practice helps you avoid automatic renewals at the original terms. Instead, use this period to renegotiate and secure better conditions. Revisiting these agreements allows for adjustments that eliminate unnecessary services and secure more competitive rates, often reflecting better terms than those of the initial agreement.
Insights from Industry Experts
“Most companies overlook these opportunities and are amazed at the amount of money wasted monthly on leases,” Hammelburger stated. “It’s often much easier than expected to make impactful changes. Around 98% of businesses we review find room for cost reduction.” This reveals the potential value in reassessing your contracts, particularly if they’ve been on autopilot for years.
Specialized Contract Review Firms
Consider engaging firms that specialize in auditing telecom and service contracts. These specialists focus on uncovering cost-saving opportunities within existing agreements, often in exchange for a percentage of the savings. The process is typically risk-free for companies, as the firms are only compensated when savings are realized.
Open Negotiations with Vendors
Even if your contracts are not yet up for renewal, opening discussions with your suppliers can still be worthwhile. Vendors may be willing to renegotiate to retain your business, potentially offering options like lower monthly fees or more flexible payment terms. Initiating this dialogue can lead to agreements that temporarily ease financial strain while laying the groundwork for more significant savings when renewal time arrives.
By taking these proactive steps, companies can effectively manage their contracts and reduce unnecessary expenses, improving their bottom line without sacrificing operational needs.
5. Vendor Payment Negotiations
Vendors, like providers of office services and equipment leasing, often have flexibility that can be leveraged when cash flow is tight. The benefits of renegotiating payment terms can extend beyond immediate relief, potentially setting a foundation for long-term savings.
Initiate With a Strategy
Before reaching out to vendors, develop a solid plan. A poorly prepared approach can damage relationships or result in unfavorable agreements. Start by familiarizing yourself with the specifics of each contract, including cancellation clauses, fees, and penalties. This knowledge ensures you understand your leverage and options before entering negotiations.
Clarify Your Needs and Goals
Vendors generally prefer to accommodate clients rather than risk losing them. Clearly outline what adjustments you need to stay afloat, such as reduced rates or modified payment schedules. Be transparent about the duration and nature of any cash flow issues—this allows vendors to offer tailored solutions that could ease your financial strain.
Find Mutual Benefits
Negotiation is a partnership, and any revised agreement should work for both parties. Vendors establish payment terms to maintain their financial health, so consider how your company can create added value. For example, committing to larger or more frequent future orders could motivate the supplier to offer concessions now. Similarly, introducing the vendor to new markets or industry contacts can serve as an incentive. A case highlighted by Harvard Business Review demonstrated this: a beverage company secured a 10% discount by agreeing to use a supplier’s products in two additional markets.
Approach With a Win-Win Mindset
Effective negotiation balances assertiveness with flexibility. One illustrative tale is the saga of Matt Harrington, the baseball pitcher drafted five times but never signed due to contentious contract talks. In contrast, NHL player Zdeno Chara’s 2010 contract negotiations with the Boston Bruins were lauded as mutually beneficial. Start with ambitious requests, but be prepared to adapt. A balanced, cooperative approach is more likely to yield favorable results for both sides.
Navigating vendor payment negotiations with careful planning, transparency, and a focus on shared benefits can strengthen business relationships while improving cash flow. By keeping both parties’ interests in mind, companies can achieve practical, lasting adjustments that support financial stability without sacrificing essential partnerships.
Strategic Expense Management for CFOs Using NetSuite
Initiating an expense reduction strategy is a daunting task for CFOs. The inherent challenges lie not only in balancing budgets but in maintaining employee confidence and ensuring the stability of products and services that drive operations. Even in optimal conditions, expense management requires careful consideration to avoid growth stagnation.
The fear of hampering growth when cutting costs is a legitimate concern for finance leaders. Rash decisions can easily translate into setbacks for innovation and expansion.
Michael Hammelburger, CEO of the Expense Reduction Group, notes, “It’s a double-edged sword to cut expenses in order to stay afloat. While eliminating unnecessary costs is wise, in challenging times, it’s common for cuts to unintentionally stifle growth.”
Applying Best Practices Through NetSuite
Leveraging cloud-based ERP solutions like NetSuite can be pivotal in executing a smart, structured expense management plan. NetSuite offers a suite of tools that enable CFOs to achieve transparent cost analysis, optimized financial planning, and effective decision-making. By centralizing financial data, NetSuite allows finance teams to identify non-essential spending, monitor trends, and establish data-driven strategies that align with business objectives.
With NetSuite’s comprehensive reporting and real-time visibility into financials, CFOs can move beyond reactive measures. The system supports predictive analytics and forecasting, enabling businesses to approach cost-cutting with a proactive mindset. This mitigates the risks of indiscriminate cuts that could potentially derail growth.
Lessons and Best Practices for Sustainable Cuts
Historical insights from past economic downturns emphasize the importance of mindful cost-cutting. Companies that excel during challenging times often have one thing in common: strategic financial planning. With NetSuite, organizations can apply these lessons by using automated tools to scrutinize expenses without slowing down essential functions.
NetSuite’s financial management capabilities also allow companies to evaluate capital spending plans effectively. By integrating budgeting modules and flexible scenario planning, CFOs can continue allocating resources to critical growth initiatives while trimming inefficiencies elsewhere.
Building a Culture of Strategic Spending
Cost reduction should not trigger anxiety within teams or prompt sudden cuts that impair business health. NetSuite’s collaborative environment can be utilized to foster open communication among departments, helping employees understand that strategic adjustments are aimed at strengthening the company’s long-term vision. This approach reduces uncertainty and promotes a shared commitment to sustainable financial practices.
Conclusion
For CFOs, expense management doesn’t have to be synonymous with compromise. With tools like NetSuite, organizations can cut costs methodically, protecting their future without halting momentum. Conscious expense management, underpinned by thorough data analysis and strategic planning, ensures that companies don’t just survive during tough periods but position themselves to thrive as the economic landscape shifts.
