Cost-cutting is often associated with down times. A slowdown in sales or increased competition may force a business owner to reduce expenses just to maintain a satisfactory profit margin. On the other hand, a savvy entrepreneur keeps a constant watch on costs even when business couldn't be better. Wise reductions in specific fixed and variable expenses offer a number of benefits. They make the business more efficient; provide opportunities to cut prices and attract more volume; and make it easier to build reserves, whether to fund long-term growth or survive short-term downturns.

One should always be careful when cutting costs. When they affect legitimate expenses, deeper-than-necessary cuts to the operating budget could come back to haunt you. First, make sure you understand every segment of your business operations. Compare your financial data with similar businesses and see how closely yours is operating within industry norms. A break-even analysis will show the volume point at which gross profit equals expenses. From that point on, a business moves from a loss to a profit picture.

As you review your business's expenses, remember that even legitimate costs have a way of creeping upward over time. It's up to you to determine whether those funds might be better used or less costly alternatives are available.

You may be able to negotiate a more favorable lease or renegotiate a long-term debt at a better rate. In addition, seek out discounts that may be available if you meet pay early.

One way to reduce costs without cutting specific expenses is by increasing the average sale per customer. This allows you to spread the same expense across a larger income. The same approach works for retail operators who measure sales per square foot.

Regardless of volume, keep in mind your need to build in a solid profit margin on your sales. If part of your product or service line has a small profit margin because of competition and market pressure, you should add a higher profit margin to other goods. Your objective is an average profit margin that meets your business goals.