Are your business expenses high? Are you struggling to cut back on your spending? Here are some tips on how to drastically cut expenses for your business.
Small businesses are used to running lean operations. But no one can deny that they’re squeezed for every last dollar.
The truth is, the majority of small businesses fail after just a few years. They don’t fail because of a faulty concept or a bad strategy. According to a U.S. Bank study, 82% of business failures are due to cash flow problems.
If your business expenses are holding you back, there’s plenty you can do to mitigate costs. Keep reading to learn how to drastically cut expenses for your business.
- Downsize Your Office
- Get Your Energy Cost Down
- Claim All Relevant Tax Deductions
- Deduct Startup Costs
- Deduct Client Meeting Expenses
- Claim Your Home Office Deduction
- Reduce Supply Costs
- Cut Your Advertising and Marketing Spend
- Review Your Insurance Costs
- Minimize Risk
- Improve Security
- Don’t Overpay for Coverage
- Get Your IT Spend Under Control
- Rethink Your Employment Model
- Cut Down Your Business Expenses Even More
Downsize Your Office
Nothing is more exciting than moving into that brand new office. But spending too much could put a damper on your cash reserves.
Office space comes at a premium these days. If you’re in a metropolitan area, you can expect to pay more than if you’re in the suburbs or a rural area. For example, in New York, office space per employee costs at least $14,800 annually, on average.
Startups often run into this problem. Once they get venture funding, it’s too tempting to throw down a deposit on the office of their dreams.
Try not to fall into this trap. Consider how your business is set up.
How many employees do you need in your office? Can they work remotely instead? If you’re a contractor or a field service company, you may not need to spend money on a shiny new office space.
If your current office is dragging you down, consider downsizing. It may not be fun for your employees, but it’s better than sinking because of ballooning rental costs.
Get Your Energy Cost Down
Energy costs fluctuate based on the market, but they are still one of the top three expenses for 35% of small businesses. If you’re looking at reducing energy costs, you’re not alone. 42% of small business owners have reduced their energy use due to higher energy costs.
Your first step should be to reduce your utility bills. This could be as simple as turning down the heat in the winter or opening a window in the summer instead of using air conditioning. Consider adding additional insulation to your windows in the cold months.
You should also look at your office appliances. If they aren’t efficient, they could be overusing energy. This goes for new appliances as well.
For example, if you’re having a new gas appliance fitted for your business, the choices you make will appear in your costs. Gather quotes from engineers before making a decision. Pick the appliance with the highest quality and the lowest cost.
Consider switching to green energy sources. There will be an initial cost, but you will save in the long run. You could put solar panels on your roof or switch to a green power plan if one is available.
Finally, review your energy options. In most cases, you’ll be stuck with one or two utility companies to choose from. But they may have different payment options.
If your energy bill is too volatile, see if your utility company allows for fixed-rate payments.
Claim All Relevant Tax Deductions
One survey of small businesses found that nearly 1/3 believe they overpay their taxes.
Below are a few deductions you should take advantage of. But there are plenty more you can claim. Learn more about the biggest tax deductions you can claim for your business.
Deduct Startup Costs
If your business startup costs are $50,000 or less, you may be able to deduct $5,000 in business startup costs and $5,000 in organizational costs on your tax return.
Deduct Client Meeting Expenses
Every business owner wants to impress their clients. But wining and dining gets expensive.
If client meetings are a big part of your business, you may be able to claim tax deductions for them. Travel, meals, lodging, and entertainment expenses are allowable deductions. But there are exceptions.
You should speak with a tax professional to determine if you can claim these deductions.
Claim Your Home Office Deduction
Do you work from home and pay rent? If you maintain an office, you can deduct part of your rent on your taxes.
There are rules to this deduction. You can’t claim your entire apartment or condo as an office.
Your office must be separated from your living area. You can claim part of a room, but only if there is a clear partition. You must use this space on a regular basis for conducting business.
Your home office must be your principal place of doing business. It must also be exclusive. That means you can’t use the space for other purposes.
Speak to a tax professional to see if you qualify for this deduction.
Reduce Supply Costs
Small businesses often get comfortable with their suppliers. It’s easy to get into a steady flow of ordering supplies and doing business. But you could be overpaying for supplies.
Whether you own a restaurant or a small marketing agency, review where you’re getting your supplies from. There could be other wholesalers who can supply you for less. Keep an eye out for new suppliers and better deals.
If you are buying office supplies from retail stores, look for discounts and special programs.
They may have price match guarantees. They may also have special credit cards for small businesses.
Cut Your Advertising and Marketing Spend
On average, small businesses spend about 1% of their revenues on marketing and advertising. The often-cited benchmark says that small businesses should spend 2%.
If you’re spending more than 2%, you could be overpaying for marketing. While it’s important to obtain more customers and clients, some marketing efforts amount to throwing money into the wind.
Do a periodic review of your marketing strategy. Calculate your ROI to determine if your investment is paying off. If not, rethink your approach to marketing.
Are you spending too much on digital advertising? Is your current strategy reaching the right people?
Marketing should never be a “set it and forget it” strategy. Make sure your strategy evolves with your business.
Review Your Insurance Costs
To be a responsible business owner and entrepreneur, you need to pay insurance premiums.
But you could be overpaying for insurance. There may be other providers who can give you the same coverage for less.
Once you’ve done a cost-benefit analysis of all your insurance options, pick the provider that best serves your business.
There are other ways to lower your insurance premiums. Here are some examples:
Initiate a safety training program for your employees. Stock your workplace with all necessary safety precautions. These could include first aid kits and other materials.
Your goal should be to reduce the possibility that you’ll need to make a claim. A claim could lead to rate hikes, costing you more.
If your workplace might be the target of theft or burglary, you need to prioritize security. Consider installing security cameras and an alarm system. These tools are more affordable than ever, and they can reduce your insurance costs.
You should also install fire protection devices, like smoke detectors, in your business.
If you handle customer data, you need a robust defense against data breaches. Consider hiring an outsourced IT security service provider. Take basic precautions with your network and your computers.
Don’t Overpay for Coverage
Having to use your insurance is a terrifying prospect. Some small businesses get too much coverage because they fear an incident.
Review your insurance regularly to see if your coverage lines up with your level of risk. If your coverage is more than sufficient, you may be able to cut back. Just be sure not to leave yourself too exposed.
A skilled insurance broker can help you determine your needs.
Get Your IT Spend Under Control
There are plenty of ways to grow your business through digital technology. But IT can also be a cost center.
If technology is a big part of your business, you may think you need the best of the best. But you don’t need to spend enormous amounts of cash on fancy computers. Pick reliable models that will serve your purposes.
You don’t need to hire a full-time IT expert. There are plenty of outsourced IT companies that serve small businesses. They can provide you with the same services big businesses get for a fraction of the cost of an in-house hire.
Rethink Your Employment Model
Most businesses would rather have devoted full-time employees. But employee overhead is often one of the biggest expenses for small business.
Consider offering part-time positions for roles that aren’t essential. You can also cut costs by outsourcing jobs to contractors and freelancers.
When hiring contractors, don’t focus entirely on cost. Cheap contractors tend to do cheap work.
Skilled contractors may charge more, but they will cost you less than if you have to fix someone else’s work later.
Cut Down Your Business Expenses Even More
If none of these tips apply to you and you’re still trying to figure out how to drastically cut expenses at your business, don’t panic. There are plenty of other changes you can make to your business to save money.
Depending on the type of business you run, your savings could lie elsewhere.
For example, do you operate a fleet of vehicles? Fuel costs may be a big cost center. Are you a restaurant owner? You could be overpaying on wholesale food supplies.
For more tips on cutting expenses, check out the business section.