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Are your small business costs getting out of control? Do you feel like you’re working harder for every dollar of profit?
When small businesses start to feel the pinch in their profits, the go-to response is often to focus on increasing sales. While this is a valid strategy, there are some circumstances where this is not feasible or realistic, i.e. when economic factors are less than ideal or your product mix is struggling to meet customer needs.
And, even when increasing sales is a realistic, worth-while strategy, you should also be consistently looking at your costs to find ways to keep more of your hard earned sales dollars.
First Things First – Get Your Head In The Game!
Before you even begin reviewing your costs, change your mind set in 2 main ways:
Stop being emotional!
Start thinking, ”Saving is Exciting, Not Spending!”
Once you’ve got your mind right (and believe me that is 90% of the battle), here are 10 things you can do to get started.
1. Analyze All Labor Costs
Labor costs include everything from salaries and wages to employees and family, overtime pay, fringe benefits, payroll taxes, contract labor, sales commissions, bonuses and payroll processing fees. Nothing is sacred when it comes to keeping your business healthy, so look at all of these. Consider the following as some ideas:
– Remove family members from payroll if they don’t provide any business benefit
– Freeze hiring and restructure roles and responsibilities
– Alter how you pay sales people by lowering base pay and increasing commission
– Eliminate overtime by improving scheduling or revamping workflow processes
– Restructure bonus plans to align with company profitability
– Outsource or contract certain services, like specialty areas or for seasonal businesses
– Research other payroll service options
– Reduce officer pay and corresponding payroll taxes
2. Revisit Insurance Policies
Often times when businesses change, insurance policies don’t change accordingly, resulting in being over or improperly insured. Meet with your insurance agent at least once a year to review all your policies to be sure your agent understands your business and that your coverage levels align with your business’s operations and risks.
Also, check to be sure you are properly categorizing your employees for worker’s compensation insurance purposes. Insurers rate employees based on the highest risk areas of their jobs if you don’t track those hours separately. A little extra effort categorizing employees’ hours can save big on your worker’s comp bill.
3. Reduce or Eliminate Bank and Credit Card Fees
Paying credit card bills late or not reconciling your bank accounts monthly can result in hefty late fees, finance charges and bounced check fees. Staying on top of paying these bills on time and recording all of your bank account transactions as you go will make it easier to reduce or even eliminate these charges. Many accounting software packages allow you to set up reminders to pay certain recurring bills on a regular schedule, or use reminders in your email application so you don’t forget important due dates. If you have an accountant or bookkeeper, make sure they understand that late fees or bank charges for bounced checks will not be acceptable.
4. Review Utilities Costs
Some ideas for reducing your utility costs include:
– Turn off those lights
– Shut down computers at night
– Switch to laptops from desktops (they consume far less power)
– Install programmable thermostats
– Change all of your light bulbs to energy efficient compact fluorescent lamps (CFLs) and light-emitting diodes (LEDs)
– Install motion detectors that automatically shut off the lights in lesser-used areas of your business
– Install skylights and make use of natural daylight
– Replace old equipment with Energy Star appliances
– Install water efficient appliances, low-flow faucets, low-flow toilets, and high-efficiency urinals
– Install an energy efficient water heater.
5. Examine Telecommunication Costs
Land lines – do you really need one?
Cell phone bills – is there a better plan available or do all your employees need one on your dime?
Internet costs – is there a bundled plan that might be better?
6. Create and Manage to a Budget
This is an important discipline that’s often overlooked. Creating and managing to a budget keeps you on track and creates accountability for you and your employees. Reviewing your financials at least once a month against your budget can help you crack down on costs before they get out of control.
7. Ask Employees for Ideas
Your employees are a good source of ideas for how you can save money and cut costs. Often they are closer to some of your business’s spending than you might be. It also gives them an awareness that you are watching costs and that can be a sense of comfort for them to know you want your business to get and stay financially fit.
8. Replace Aging Equipment or Vehicles
Take a look at how much you are spending on maintenance and repairs for your aging vehicles and equipment. Older vehicles consume more gas and older equipment doesn’t run as efficiently as it did when it was new, plus as technology advances, newer equipment is built with a mind toward saving energy and fuel. The cost to keep that old clunker might now be exceeding the cost to replace it.
9. Take Advantage of Purchase Discounts
Often your vendors and suppliers will offer their customers a discount for early payment or bulk purchasing. If it’s not clear on the invoice, there is no harm in asking. Cash is king and many suppliers will gladly give you a discount to pay early or to buy over a certain order quantity so they can get their money little sooner.
10. Rework Obsolete Inventory, Sell As Salvage or Donate
The cost to carry obsolete inventory can be crippling to a small business. If you can re-work the inventory to make it salable, do it as soon as possible. If the inventory is truly obsolete, consider donating it to a non-profit and getting a tax deduction or scrapping it for whatever value you can. Inventory sitting on your shelves that is not moving provides no value, and any value you can eke from it is better than none.
There are many other ways to cut your costs, but these are just some ideas that can be very impactful. The most important thing is to start now. If you don’t have the time to do this yourself, consider hiring a cost saving consultant, who gets paid only if they save you money, or contact us at Barba CFO by clicking here for our contact form. We can help you get a handle on your small business costs. We have helped many small business gain huge savings by employing these and other strategies.