When running a small business, every dollar counts, so it's critical to keep a tight rein on your expenses, especially when you are just starting out and have limited revenue. If not monitored carefully, spending can quickly get out of control and put a serious strain on your operation's financial health.
Outside of hiring an experienced bookkeeper to keep track of your expenses and monitor areas where you might be bleeding cash, there are several other ways you can keep your expenses in check. And you don't need an accounting degree to put these strategies into practice.
With this in mind, here are five cost-cutting measures that can help your company stay in the black.
1. Encourage Remote Work
During the pandemic, telecommuting and remote work became the norm rather than the exception. And even now that the shutdowns are over, many companies are choosing to keep a large number of their workers at home or adopt a hybrid approach, allowing employees to work both from home and in the office.
One of the main reasons for this shift lies in the tremendous potential to cut costs. In fact, according to Global Workplace Analytics, employers can save up to $11,000 per year for each employee working remotely at least half-time. Beyond the direct cost savings, remote work also improves employee morale and job satisfaction, both of which help boost productivity—and in turn, your bottom line.
If remote work is possible for your company, you should seriously consider taking advantage of the reduction in overhead and expenses, as well as the improved morale and productivity it can provide. The following are some of the primary ways telecommuting can reduce your company's expenses:
- Reduces utility costs through lower electricity, internet, phone, and water usage
- Reduces the amount of office space (and real estate costs) required to house employees
- Reduces bill for cleaning services with fewer staff onsite
- Reduces office supply and food costs
- Reducing commuting costs for employees
- Reducing time lost to commuting
2. Utilize Independent Contractors
Employees are typically among your company's biggest expenses. In addition to the costs related to recruiting, hiring, and training, you also have to foot the bill for their payroll taxes, as well as paying for unemployment insurance, workers' compensation, and disability. Given these costs, one of the best ways to reduce labor expenses is to use independent contractors (ICs) whenever possible.
In addition to saving on payroll taxes and employment insurance, you also don't have to offer ICs benefits and other perks, such as health insurance, retirement plans, and paid time off, nor do you have to provide them with equipment and office space. All of this seriously adds up, with studies showing that you can save up to 40% or on total labor costs by using ICs.
Plus, with the advent of the gig economy and online work-for-hire platforms, finding qualified ICs is easier than ever. That said, it's imperative that you construct your working relationship with your ICs properly and have solid employment agreements in place when working with contractors, or you risk facing serious penalties that can end up costing you far more than what you save on labor. To this end, be sure to consult with us for guidance and support before you start bringing on ICs or to clean up your current agreements.
3. Pay Invoices Early
You might be surprised by how many vendors are willing to give you small but meaningful discounts for paying your invoices early. For example, it's common practice for vendors to offer a 2% discount when you pay your invoice in full within 10 days, instead of the typical 30 days. This discount is often represented by the terms “2/10 net 30” on the invoice.
Paying invoices early also helps you establish strong relationships with vendors, which can open the door to even bigger discounts and more favorable payment terms down the road. Not only that, but paying on time helps you establish good business credit. And the better your credit, you are more likely to attract new vendors, investors, and lenders.
4. Use A Cash-Back Business Credit Card
Speaking of credit, if you have a good credit score, you can qualify for business credit cards that offer cash-back rewards, and use those cards to pay for large or regular purchases for your business. The leading business cards offer between 1.5% to 3% cash-back on purchases, with some offering an even higher rate of return.
And if you travel a lot for business, you may want to look into business credit cards that reward you with airline miles instead, which can be just as—if not more—valuable than cash rewards. Provided you pay your balance in full each month and use them for purchases that you would have made anyway, these business cards basically offer you free money.
5. Take Full Advantage Of Tax Deductions
Although taxes are the single-biggest expense business owners face, you can greatly reduce your tax bill by taking full advantage of every possible business deduction. And there are a ton of deductions available, some of which you may not be aware of, including a few only available this year.
While you should work with us and a CPA to ensure you don't miss out on any deductions, here are some of the business deductions you definitely should take advantage of whenever possible.
Utilities: Any utilities used for your business are fully deductible. This includes things like water, electricity, trash, telephone, and internet. And as long as you use at least some of the time for business, remember to put the cost of your cell phone on the expense side of your P&L statement too.
Insurance: You can deduct 100% of the cost of most types of business insurance. This includes many types of coverage: health insurance, general liability insurance, commercial property insurance, business interruption insurance, professional liability/malpractice insurance, cyber insurance, worker's compensation insurance, and vehicle insurance.
Office rent: If you rent your business property, you can deduct your lease or rental payments from your income taxes.
Office supplies: Office supplies, such as paper, pens, printer ink, staples, envelopes, office furniture, computers, printers, etc., can all be deducted.
Business interest: Whether it's a business loan or a business credit card, you can fully deduct interest charges. You can also write off any additional fees or extra charges on your business bank account and business card, such as monthly service fees and annual credit card fees.
Travel expenses: Many expenses related to business travel are fully deductible, such as airfare, car rentals, lodging, tolls, and meals.
Business meals: In most years, business-related meals (food and beverages) are 50% deductible, but for 2021 and 2022 only, the cost of business meals served by a restaurant is 100% deductible. And as long as it's from a restaurant, meals served via takeout and delivery qualify too—you don't have to actually eat on the premises.
Advertising and marketing: Any money spent on advertising or marketing your business is fully deductible.
Professional services: Any fees for professional services for your business, such as legal, accounting, and bookkeeping, are deductible. Of course, this would include the fees you pay us, which can make our services even more affordable.
Keep Your Operation Lean
Outside of these measures, there are sure to be numerous additional ways you can streamline your finances. While it may sound funny given that we're not cheap to work with, if you're looking to cut unnecessary costs, and get the most bang for your business buck, start by sitting down with our firm for a LIFT Audit.
As your local Family Business Lawyer™, we'll assess your current financial systems and advise you about additional ways you can shore up any weak spots in your company's financial foundation.
Staying on top of your finances in this way will not only prevent you from running out of money, and it will also free up your time and energy to focus on the big-picture responsibilities needed to ensure your business not only survives, but truly thrives. Contact us today to get started.
This article is a service of R&R Legal Advisors LLC and Family Business Lawyer®. We offer a complete spectrum of legal services for businesses and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death or incapacity. We also offer services specifically for startups and ongoing businesses, which review all of the legal, financial, and tax systems you need to LIFT your business. Call us today to schedule your consultation.