You wear a lot of hats as a small business owner, from sales to marketing and advertising, and these days — with the help of expense trackers and budget apps — bookkeeper and accountant. Budgeting is one step and keeping track of your actual expenses another. While apps can help you learn how to keep track of business expenses, you're the ultimate deciding factor with your small business. Which expenses can your business afford to cut back on, and which can you reduce while still allowing your business to grow and thrive?
These are all great questions. A lot of businesses consider their fixed and variable expenses differently. Fixed expenses include lease payments, utility payments, phone bills, and loan repayments. Accountants call them "fixed" because they rarely change. That doesn't mean you can't change them. You should take every opportunity you can to keep your small business expenses and budget lean and flexible.
Variable expenses differ from month to month and also differ depending on your business. If your business operates on a per-job basis like carpentry business, your expenses naturally vary from job to job. Likewise, if you have a seasonal business like photography, you'll have more costs for transportation at certain times of the year, like May and June for graduations and weddings.
If you're wondering how to track business expenses, you can use any of several popular expense tracking programs and apps to see what your common business expenses are. The old-fashioned pencil-and-paper method will also work. Whichever method you choose, record your monthly fixed and variable expenses. These categories can include (but aren't limited to):
- Rent/lease payments (or a portion of your home office expenses)
- Utilities
- Cell phone/internet
- Travel and transportation (fuel, vehicles, auto insurance)
- Salaries and benefits
- Debt payments (loan, a line of credit, credit cards)
- Supplies
- Equipment
- Merchandise
- Marketing and advertising
- Taxes and licenses
Especially these days with costs rising unpredictably, from gas prices to cell phone fees, it's not just smart business planning to keep track of every expense and reduce wherever possible, it's essential.
Analyze your expenses to determine where you can cut back. If you've been used to paying the same amount for a certain bill "forever," now is the time to re-evaluate that expense. Can you find a better price somewhere else?
Here are a few areas that you may be able to cut back on, or get creative about while you're saving money and improving your business bottom line:
1) Advertising and marketing
Word of mouth is much more effective than other forms of advertising. According to McKinsey, word of mouth is the factor behind 20 to 50 percent of buying decisions. The bigger the purchase, the more influential customer recommendations become. If you've been spending a lot on conventional advertising, consider networking more and advertising less. Research backs this tactic for building small businesses. You may need to pay for a Chamber of Commerce membership, but it should pay for itself after you get referrals for new business.
2) Supplies and equipment
If you've been using the same suppliers for years, have you checked their competitors' pricing recently? You may not need to switch suppliers, but if you contact your vendor and tell them you've seen lower prices from their competitor, they may match or better the competitor's price. You may also save money by leasing instead of purchasing equipment.
3) Credit payments and debt
If you have several credit cards, consider merging them into a single low-interest card. You may also think about obtaining a line of credit that could replace the cards and offer lower interest payments.
4) Small business insurance and bonding
Check your business insurance policies carefully. Are you carrying duplicate insurance? Or, are you paying too much for coverage? Get at least three quotes for liability and other insurance. Don't automatically go with the lowest price. Look for the best combination of price, service, and coverage to meet your needs. You could combine insurance coverage and save money each month.
5) Occupancy costs
You may have a long-term lease but have you considered moving or re-negotiating it? You may move into a less expensive space or you may get your landlord to make some adjustments to the amount you pay. If you have a service business, have you considered a mobile office or a home office? You might dramatically cut costs that way. Up to 25% of employees are now working from home at least part of the time: why not you? You could also investigate co-working spaces or shared office space.
Other occupancy costs include utilities, internet, cleaning, and maintenance. You should evaluate these costs. If you're paying high power bills, most utility companies offer free energy audits and rebates for energy-saving improvements. Some communities are offering lower utility prices or your participation in peak use programs. Could your business survive having the power turned off for a few hours during peak summer use months? You might be eligible for one of these discount programs.
6) Look into Bartering
You may be able to do some work for another business who can perform work you need that you've been paying for. If you're a carpenter who could use bookkeeping help, do you know a bookkeeper who could use carpentry services? If you can take some services you're paying for out of your monthly budget, it may really help to improve your monthly bottom line. Make sure both of your businesses are trading services of roughly equal value. You can use online bartering websites to draw up agreements.
Does it seem like every time you open a bill, there's a new, increased charge added to it? The companies who bill you aren't shy about asking for more money. Above all, don't be embarrassed to ask about prices, discounts, and potential savings. You may get discounts for paying your bills early, for being a long-time customer, or through price-matching offers.
Most of your business expenses qualify as small business tax deductions when it comes time to file your taxes. You should only pay taxes on your actual business profit, not from your necessary ongoing expenses. Be wise and save money on your expenses every month and once a year by writing off business expenses when tax time comes.
