A penny saved is a penny earned, right? Actually, a penny saved is better than a penny earned for a number of reasons. Especially in the business world when you are taxed on your net profits.
So unless your income is 100% passive, you are trading time for money. Time that you could trade for something else worthwhile. Maybe if you didn't have to trade all the time for money, you could use your time to invest back into your business to multiply and grow and make even more money then you ever could before.
Many businesses I work with make good money, but bleed away potential profits due to high overhead costs and unnecessary expenses. With that in mind, here are 5 ways that you can reduce your overhead and keep more of what you earn.
(1) Hire a Real Accountant
It's hard to bite the bullet and spend the money on an accountant for bookkeeping and tax prep. But having a professional manage your books throughout the year will actually save you a lot of money in the long run. Accountants more than pay for their own services by finding you deductions you may have overlooked, keeping accurate records so you can spot inefficiencies and more effectively manage cash flow, as well as preventing you from paying penalties or interest caused by errors. It’s a big investment, especially for a small business. But it’s an investment worth making. You can’t put a price on peace of mind.
Most small business owners vastly under-utilize their accountant throughout the year. Be sure to talk to your accountant at least once a quarter. They are there to save you money and are worth several times what you'll pay them to do the job right. The expense of a good accountant is nothing next to what is the biggest expense for most business owners, TAXES.
(2) Downsize for Efficiency
Sit down with your accountant to go over line items that are:
- Too high in price
- No longer necessary
Additionally, go through your office and do a little spring cleaning. Liquidate or donate old technology or equipment you're no longer using. Physically clearing out and cleaning up your office space can go a long way toward productivity.
(3) Build Good Business Credit
This is a biggie. Having good business credit (through your EIN not your SSN) gives you the opportunity to:
- Manage your cash flow more effectively by controlling how and when you pay your invoices
- Stagger expenses so they aren't due immediately
- Access working capital without relying entirely on advances or loans
- Get better rates on equipment or supplies
- Obtain additional capital without collateral backing or proving high enough revenues
- Reduce expenditures such as insurance policies
- Build relationships with new companies using your credit rating as good faith proof
(4) Leverage Your Current Client Base
In most businesses, the best clients are the ones that have already bought from you. As long as you've provided a quality service and they feel they received a fair value, they are more likely to spend money with you again. Getting new business is hard, so why not use the client base you have to create additional income? You can:
- Offer incentives for your customers to purchase again. Sales, coupons, promotions, etc.
- Ask for testimonials or referrals, word of mouth
- Create an opportunity for up-sells
(5) Focus Your Efforts
Every entrepreneur alive understands the unique challenge of wearing about 10 hats at a time. As entrepreneurs, we are constantly multitasking, trying to do it all to move our businesses forward and stay afloat. But multitasking too much can wear you down, decrease productivity, and ultimately cost you more than is necessary.
How much is your time worth? Is your time worth $20 an hour? $40 an hour? $100 an hour? $200 an hour? Let's say your time is worth $50 an hour and you spend 10 hours a month doing something you could pay someone else $200 to do. If that's the case, then you're losing $300 a month.
Let's do another example. I had a client, Mark, who owned a fencing company. He had one full-time employee, and a handful of 1099 contractors he hired to do jobs with him. Every Sunday, Mark was down at Home Depot picking up fencing for whatever job he had on Monday. He spent HOURS at Home Depot, often with at least 1 employee, who he paid by the hour. They drove there, picked up the material, drove it to the job site, and drove home. On top of that, he was paying in cash at the register for the material, which was money out of his account BEFORE the job was completed.
What did this cost Mark?
- $12/hour to his employee for 2 hours = $24
- Time away from his family on Sunday
- Cash immediately out of his business bank account for supplies
Mark was not focusing his efforts. Mark was trying to do it all. Now, Mark went through our Business Finance Suite and was able to secure a line of credit wth Home Depot. After that, Mark was able to:
- Order materials online
- Get bulk pricing and volume discounts
- Get 60 days to pay with zero interest
- Get free delivery of the materials to the job site
- Save money from not paying his employee hourly
- Get his Sundays back with his family
At the end of the year, Mark and his accountant were able to review the difference this ONE change made for him financially. They calculated that he'd increased his profit margin by over $100,000 in that first year AND improved his cash flow to where he was able to complete his contracts first before paying for the supplies. As a side benefit, his relationships with his contractors improved because payroll was no longer subject to collecting invoices on time.
Figuring how you can work smarter, not harder is the key to business success, and that's what we, here at Emery Advisory Group, are passionate about helping you do.