Five ways to cut your budget deficit

We've nicked the government's best ideas to help you sort your finances.

We've all been there - you just seem to be trapped in a terrifying downward spiral of more money going out than ever comes in. And we all know too well this is the precise situation our government and nation has found itself in. The Coalition government has already taken some strident measures towards cutting the deficit, and, well, it hopefully knows what it's doing. So we've nicked a couple of its best cost-cutting tactics and tailored them for small business.

1. Be your own Office for Budget Responsibility

Cutting a budget deficit can't be done by one department alone - it has to happen across the board. So make like the Office for Budget Responsibility and look to highlight potential savings in every 'department' of your business - your marketing spend, cleaning bills, IT support, staff costs - everything.

Start with the obvious ones - can you do without a cleaner? Could you find a better deal for your utilities using a price comparison website? Renegotiate your lease with your landlord (click on the link for our feature on this). Move your business into your home, or at least into smaller premises (tip: get smaller desks). Cut advertising spend by only taking out ads at the end of the month (more tips on that through the link). Use free software such as Mozilla's Thunderbird or Open Office rather than buying expensive new Microsoft Office packages.

For the more complex business functions where it's not immediately obvious how you can cut costs, break them down to unearth where you get most value. So for example look at your marketing spend, and monitor it for three months to find out where most sales leads come from. Then reallocate your marketing spend to the most successful channels. Trial new channels too over short periods to stay on top of your game.

Do the same for staff, if you have them. Anyone who is not bringing in more money to your business than it costs you to keep them there is losing you money. It may sound blunt, but it's true. Offer part-time work instead, or lower salaries. Most people would prefer less income to no income during times like these. Just be incredibly tactful in the way you communicate (our feature on getting redundancy right will help). For those that stay with you, keep their expenses tightly in check: this isn't the time for flashy client lunches and extortionate phone bills.

2. Rebalance your economy

The government has finally realised we rely too much on financial services as a nation and we need to spread out our sources of revenue if we want to create a sturdier economic base (read this blog for more on that).

There is a crucial lesson here for small businesses: rely too much on one source of income, and if it falters, you become incredibly vulnerable. It's happening all too often at the moment, and while it might not be an instant solution to your budget deficit, it will protect you from bigger problems when that one loyal customer's revenue stream starts drying up.

Make sure you always have a good spread of clients - one other business or person shouldn't account for much more than 50% of your revenue. Don't forget to go chasing new customers just because things are rosy right now - the search might bring in enough new work to up your profit margins too.

At the same time, learn how to sell more to buyers without any extra effort to maximise your revenues. Our feature on how to cross-sell will explain all.

3. Cut your aid budget

You're not running a charity - so stop being lenient on late payers. When you're in debt, you need to put yourself first. Put measures in place to ensure you get paid on time - incentivise early payers if need be.

You obviously need to still be polite to customers, but don't be afraid to chase invoices regularly - and that starts with a phone call checking they received your invoice as soon as you send it out. Then call every couple of days, increasing to once a day as deadline approaches. The other guides and videos in this section of the site will help you.

4. Hold a Cabinet meeting

There's no point trying to cover up financial problems when you're a small team - rumours travel faster than you can say 'Chinese whispers'. So be open - explain that there's a bit of cash shortfall. But do it calmly, play down any real seriousness and say that's it is all under control.

Then say you're open to everyone contributing ideas on how to cut costs and improve things. Perhaps even offer a prize or treat to the person who comes up with the most ingenious ideas. Make it feel like you're all pulling together to make the business stronger, rather than all rushing around trying to plug the holes in a sinking ship.

You've employed these people for the way they think, so use that - they are your very own Cabinet.

5. Use the Big Society

We've already blogged on why we like David Cameron's ambitious philanthropic community idea, the Big Society, which encourages citizens to volunteer and help each other out for free. You can capitalise on the idea by calling in favours and exchanging your services for free with your contacts, rather than either of you paying. It won't work every time, but the times that it does you will have just saved yourself spending on that service.

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