Running your own business means far more freedom and income potential than working for someone else. But managing your venture also comes with far more costs, and the amount of money you’ll need to spend to turn a profit can be downright shocking to new entrepreneurs.
If mounting costs have you feeling cash-strapped, here are 10 tips to reduce your small-business expenses and improve your bottom line.
1. Renegotiate vendor contracts
It’s easy to sign a contract with a vendor, such as a snack supplier or printing company, then forget about it. If your small business has a solid track record with its vendors, call and ask if you can renegotiate your contract for a better rate. Some vendors may be willing to offer a discount if you commit to a longer contract or pay annually instead of monthly.
2. Shop in bulk
If your business is growing, save by buying in bulk. Wholesale purchasing isn’t just for office snacks and drinks; it can also be a good way to save on software and furniture. If your business is too small to buy in bulk, team up with another business or an association and go in on purchases together.
3. Compare financing options carefully
Many small businesses reach a point where they need to borrow money in order to grow, but selecting the wrong kind of financing can cost big bucks in fees and interest payments. For example, you can get quick and easy financing with a merchant cash advance, but the effective interest rates can be astronomical. Credit cards help if you need a few purchases, but APRs can be too high for those who plan to carry a large balance. Take the time to research and compare financing options, such as a traditional or alternative business loan, line of credit, equipment financing and invoice financing, so you end up with capital that works for you rather than against you.
4. Eliminate unused expenses
Are you spending money each month on goods or services that you no longer need? Carefully review your budget to see if anything can go. Perhaps, you can end subscriptions for trade magazines you don’t read or cut memberships at organizations where you aren’t active.
5. Automate where you can
Save time and money by finding ways to automate processes. For example, instead of manually sending contracts and paperwork to every new client, you could digitally automate the process with a tool like DocuSign. Or perhaps you take paper checks only because you don’t want to pay fees to accept electronic payments or credit cards, but inefficiencies caused by manual payment processing cuts into your bottom line.
6. Hunt for deals and discounts
If you’re buying office furniture or technology, consider shopping for lightly used items — look for business liquidation sales — for significant savings. Many trade organizations offer discounts on products and services for members, so find out if you’re eligible for any savings. Also, see if your business credit card comes with perks; many cards offer discounts on office supplies, rental cars and other business expenses (and have rewards programs that can score you free travel and goods).
7. Manage inventory wisely
If you run an inventory-based business, keeping more supplies on hand than necessary ties up cash that can be better used elsewhere. Start tracking inventory closely to ensure you’re only buying what’s needed. If you currently manage inventory manually, consider adopting software that makes it easier to track.
8. Try bartering
Bartering is a time-tested way to get what you need without spending cash. Find other businesses willing to trade goods or services that you need. Say you own a website design firm and badly need a bookkeeper — there may be an accountant willing to manage your books in exchange for building and maintaining a website. If you’re not sure where to start, some quick Googling will lead you to a slew of websites that facilitate bartering between businesses.
9. Take advantage of tax deductions
It takes time to track your tax deductions, but the payoff can be huge. If you work from a home office, you can likely deduct a portion of your rent or mortgage interest and utilities. You can also deduct for car mileage driven for work and money spent to entertain clients. Small-business owners can get tax breaks for purchasing equipment, acquiring hybrid cars and other expenses — work with an accountant to find out what you can deduct to reduce your tax bill.
10. Cut back on energy use
Many businesses don’t pay attention to how much energy they’re consuming, but being proactive can cut your utility bills. If you haven’t yet, switch to energy-efficient lighting such as compact fluorescent bulbs. If your staff forgets to turn off the lights when they leave, consider adding motion-sensing fixtures. Be sure to adjust the thermostat at the end of the day, so you’re not paying for heating or cooling when the office is empty. Also consider improving insulation and updating windows to keep energy costs down.