Top 7 Small Business Expenses and How to Reduce Them

Top 7 Small Business Expenses and How to Reduce Them

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Does this sound like you? As a small business owner, your revenue varies from month to month, but your expenses keep increasing. No matter how organized you are, fast-changing business demands always bring unexpected business expenses that impact your bottom line.

You’re not alone. Millions of small business owners — even those with years of experience — struggle with these issues. But you want your business to thrive, not just keep the lights on, right?

Keep reading to uncover smart, simple tips for how to reduce the most common small business expenses.

1) Labor

Hands down, labor is the most expensive cost you’ll shoulder. According to Paycor, it eats upwards of 70% of your operating budget.

Before you hire, it’s important to research the going market rates for employees in your area. PayScale, Glassdoor or Salary.com, as well as a number of online job boards, offer free tools to calculate and compare salaries. Even with a tight hiring budget, be sure to pay on par with the market. Remember that replacing lost employees — not to mention training their replacements — can be significantly more expensive than paying a higher wage from the start.

No matter how many employees you have, there’s software that can help lower the administrative burden of managing their time, pay and tax compliance. Many are cloud-based solutions that give you and your employees convenient, online access to important pay information — for example, ADP, Gusto, Square and Paychex. Even better, most integrate with commonly used accounting software like QuickBooks.

2) Business vehicles

Business vehicles cost a lot of money, as fuel, insurance, repairs and downtime all add up quickly. To secure your fleet and to bring down these and other expenditures, consider tools and practices to help minimize fuel, tolls and lodging costs.

There are a number of tools designed to automate reporting, scheduling and dispatching. Use these tools to ensure you’re operating at peak efficiency. Resist any temptation to forgo routine maintenance to save on short-term costs. Maintaining business vehicles can prevent larger expenses that often occur from breakdowns and malfunctions that drivers experience in the normal course of business.

3) Supplies

Need some desks and chairs for your office? Check online classified ads and refurbishment centers first. Larger businesses re-designing office space often sell existing office furniture for a fraction of what it originally cost. Often, this furniture is minimally used and looks brand new.

When purchasing other office supplies, consider joining a “wholesale” club like Costco or the rewards program offered where you normally get these supplies. Centrally locate the office supplies and secure them to manage inventory and prevent employees from taking items for personal use. Educate employees about your printing policy. You don’t have to fully restrict the personal use of a printer, but do keep in mind that every personal copy made is a cost to your business.

4) Rent or mortgage costs

Do you really need that penthouse office space in the hip part of town? Unless you’re seeking the most coveted tech talent or high-powered clientele, the answer is probably “no.” Still, whether you’re renting or buying, choosing the right office space that affords you room to operate (and grow), is an important decision.

Rates on commercial real estate mortgages or loans tend to be higher than residential mortgages, so be aware of that disparity before you buy. Location is also a big driver of cost. If you don’t need to be in the heart of your town or city, consider relocating somewhere with tax incentives for small businesses, or with a less dynamic real estate market.

5) Utilities

Devote time to exploring cost-cutting options. Start by reviewing your utilities. Ditching your landline in favor of a cloud-based phone system can dramatically lower your communications costs while also supporting employees who work remotely.

Perform an energy audit to determine areas ripe for improvement. Then, create a plan for changing behaviors. Simple things like remembering to turn off lights and keep doors closed can make a big impact on utility bills.

Energy-efficient office equipment and light bulbs are more expensive at the outset, but they pay off in the long run. Combine them with smart, energy-saving strategies. Reduce your usage during peak billing times, program your lights to turn off overnight and automate your HVAC system to heat and cool your space efficiently. Look for local providers, and take advantage of rebates and other deals in your area.

6) Insurance

Commercial insurance is necessary no matter what kind of business you are running. Insuring business vehicles alone can cost thousands, not to mention workers’ compensation, property and liability insurance.

Do your best to ensure that insurance policies don’t overlap. Consider joining a trade group that offers group-rate discounts. Proactively establish practices for protecting the safety and health of employees — especially those who are driving. Encourage drivers to adopt eco-friendly, safer driving techniques, maintain an up-to-date safety plan and explore implementing other practices to support keeping employees healthy.

7) Taxes

When it comes to taxes, organization is a small business’s best friend. Recording systems for income and expenses, including automating receipt collection, can help you stay organized year-round and alleviate typical tax-time stress. Just make sure all employees follow the pre-established procedure when doing so. Also, be sure to weigh the tax implications of big expenses, and personally stay abreast of any tax-law changes.

If you’re still overwhelmed, get help. Reducing your tax bill can produce some of your biggest savings, so it’s important to do them right.

Breaking down your expenses into categories — such as salaries and wages, supplies, utilities and rent — can give you granular insight into, and ultimately, better control over them. When you know where your highest expense areas are by category, committing to a few, key, money-saving strategies within each category will result in bigger overall savings — and a lot less guesswork.

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