is how much money you, as the owner, take out of the business each month. Consider any expenses you have that you can write off against your business. Meals, entertainment, vehicle expenses, even your salary are expenses that may be able to be reduced so that your business can experience additional growth.
Many small-business owners understand that starting a business is an investment that takes time to build. As one owner of a very successful fire extinguisher business put it, “When we first started, we had very little money. We paid the employees first, the vendors second, the government third, and ourselves last. We didn’t take home a paycheck for the first two years.” Many owners have similar experiences and if you aren’t currently taking a paycheck, you are not alone.
If you are taking a paycheck, you may want to consider reducing your salary. While it is exciting to be able to take money out of the business, it is also important to leave money in the business in order to facilitate growth. Often, expanding takes additional dollars that the business may not have if the owner takes too large a salary. If you are working to expand your business, you will need to leave as much cash in it as possible. In some cases, you may want to look at your home finances and reduce your personal expenses so that you can reduce your salary.
Lifesaver: As a business owner, you may be entitled to more tax deductions than you would if you simply worked for a business. Reviewing all of your expenses with a tax professional may help identify costs you are paying for out of your pocket that are legitimate business expenses. These items can be paid for by your company and may make it easier to reduce your salary.
7. Do Away with Superfluous Expenses
Doing away with superfluous expenses covers all other business-related expenses. Every other bill, every other credit card charge, and every other cash layout should be included in this category. For most businesses this will include your office supplies, vehicle expenses, staff break room items, cleaning services, magazine subscriptions, organization dues, and other miscellaneous expenses.
The first thing to review is any automated credit card charges. Some charges may be from old expenses that have never properly ended. Check each item and call credit companies to cancel any charges that you cannot identify or no longer need.
Next, review each bill and each item on each bill. These expenses, although sometimes necessary, are usually more elective in nature. Each item should be seriously considered. If possible, the expense should be dropped entirely. For instance, if you are currently paying for cleaning services, consider assigning these tasks to the staff instead of paying an outside agency.
Check your office expenses thoroughly. There are often many opportunities to reduce expenses in this area. For instance, if pens are being ordered, you may want to check what pens and for how much. Paying for expensive office supplies does not necessarily improve the effectiveness of the office. Further, check how often office supplies are being ordered. Does the staff order regularly from a list of approved products? Or are they ordering individual items and paying unnecessary shipping charges? Which products are they choosing? Review your local office store catalog and compare prices. Make sure to include the cost of delivery or mileage if you purchase items in person.
Lifesaver: Check your expenses to see if any items you purchase regularly or need to purchase can be obtained from another small-business owner. Many small-business owners are often willing to barter services and sometimes even goods. Just remember, bartered goods and services are still taxable unless certain exemptions are met. See your accountant or visit your local tax authority’s website for more information.
Shipping costs are another type of service that can vary greatly. The cost of shipping the item, the time it takes to get there, and the type of packaging you can use all effect the cost.
Over the last few years, the United States Postal Service has created a very competitive system for packages. With free boxes delivered to your door and low-cost fees, the post office can be a more competitive option for small business shipping.
8. Keep Costs Critical to Expansion
Although cutting bills is important, there are some areas in which you should avoid cutting costs as much as possible. Any item critical to your business success or differentiation should be kept. The following are some examples of items that should not be cut:
• Customer service: Since you are trying to grow your business, you should continue to focus on improving the customer experience, which means maintaining your customer service and not reducing these expenses. Therefore, if your business is known for providing customers free coffee while they wait, reducing this expense could possibly damage customer relationships. Even though this cost may seem unnecessary, the relationship it builds is not worth risking.
• Marketing and advertising: These expenses may be critical to expanding your client base and increasing sales. Any expense in this area should be eliminated only after a thorough review of the cost versus the number of customers and sales is completed. (For more information on tracking the effectiveness of your advertising, see Chapter 8.)
• Insurance: Unfortunately, insurance can never be purchased when you need it most, (e.g., after an accident). Therefore, insurance should not be cut just to reduce a bill.
• Legal and accounting: Although these bills can be some of your most expensive (when counted by the hour) the value of expert legal and accounting advice can often save you more than you pay. Further, the cost of not consulting a professional can often lead to more unnecessary expenses.
9. Review, Repeat, and Reduce
Once you think you have your complete list of your business expenses, you should continue to review these bills each month to ensure that no billing errors or issues arise. Although most of these items should require no more than a few seconds to review, failing to find errors can be costly. For example, a real estate business found an extra $100 per month was being spent on one rental home’s water bill. At first this additional cost was attributed to normal water usage during the hot Arizona summer, but eventually, it was traced to a toilet bowl flapper that had broken two months earlier. Although this repair cost the company only $5 to make, the failure of this trivial part added hundreds of dollars of expense to this company’s water bills before the issue was found. If they had continued to ignore monthly bill reviews, the item would have gone unnoticed and the high bill would have continued indefinitely.
4
Understand the Financial Health of Your Organization
Most business owners use accounting systems to monitor their organizations’ progress. When you are dealing with an ever-changing market, your financial reports will give you insight into how to respond to economic changes.
By carefully watching the financial health of your organization, you will not only understand your current financial position, but you will be able to notice and take advantage of trends. Perhaps sales increase dramatically on weekends, or products that used to sell well are no longer moving. Maybe repair service has suddenly started to increase. Whatever the change, good or bad, it is important to be aware that each change presents new opportunities. No business can be run on autopilot even if that business
