How to Cut Your Business Costs

Your business insurance costs go up 10-20 percent per year. Your favorite airline is still adding "fuel surcharges" to your ticket after the price of oil has gone down by 50 percent. Your wholesale supplier has recently increased the cost of flour to your bakery business by 10 percent.

Small businesses are being constantly squeezed by increases in expenses, so controlling costs is more important than ever. The following slides will show you how you can reduce your business costs and improve your bottom line.

Lower Your Office Space Costs

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Depending on the commercial real estate situation in your area, you may be able to take advantage of depressed prices for office space to move your business to less expensive quarters or negotiate with your existing landlord for better lease terms.

Better yet, if you don’t really need to run your business from commercial premises why not operate from your home or go mobile?  As an example, many of the tech repair businesses have given up attempting to compete with big box stores selling computer equipment and now operate mobile tech services that provide in-home computer sales, repair, and tutoring. Trades such as plumbing and electrical and services such as bookkeeping are ideal home-based/mobile business candidates.

In addition to savings on office space operating your business from home can save you money on insurance, business taxes, and utilities. However, if you are thinking of converting to or starting a home-based business some preliminary research is required. There may be zoning or other local bylaw issues that prevent such activities in your neighborhood. There are also other considerations such as how keen your family is to live with a business every day.

Cut Staffing Costs

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If your business has slow periods why not look at ways to reduce staffing costs?  Nowadays many (particularly older) employees are happy to take unpaid time off. Discuss it with them and you may be pleasantly surprised.

Use family members in your business wherever possible. An acquaintance of mine sells an investment newsletter and after his wife quit her full-time job she now does all of his business record keeping, banking, and most of his customer communication.

In the old days if you grew up on a farm everyone in the family worked on it. If you have children of an appropriate age, why not get them involved in your business wherever possible? Learning about business is an excellent experience for young people and it keeps money in the family. 

Have an unemployed millennial living in your basement with a degree in gender studies and no job?  Employ them in your business and give them some valuable work experience as well as boosting their self-esteem. As per normal employees, ​family members working in your business are fully deductible as a business expense.

Barter for Business Goods and Services

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Bartering has been used for millennia as a way for people to exchange goods and services.  If your business has excess capacity, why not put it to use by bartering for some other product or service you have a need for? 

Some years back a rental manager had a rental property with a tenant who was a painter by trade.  During a slow period in his business, they made an agreement that he would paint the interior and exterior of the building in exchange for rent.  It worked out very well — the manager got the property painted and kept a great tenant and the tenant saved money on his rent.

Perhaps you are a web designer which a sore neck from spending all day in front of the computer.  Pick up the phone or check online — there may be a physiotherapist or chiropractor willing to exchange services for some web design work.

Check online for bartering opportunities in your area — Craigslist has a "barter" section which in addition to goods-for-goods trades has service-for-service barters such as exchanging auto body work for flooring installation. 

To use Craigslist for bartering list your product or service as honestly and accurately as possible and describe what you would like in return.

There are also a number of online barter exchanges that charge a monthly or annual fee for listing your services or use an exchange credit system where you use/accumulate "barter" dollars to pay for business services. First Canadian Barter Exchange is one example.

For bartering to succeed both parties must fulfill their obligations.  Service-to-service exchanges can be problematical unless specific timelines are established for providing the services. As with any business relationship, do your homework before entering into a bartering agreement with someone you don't know.

Remember also that for tax purposes business bartering is treated as a normal business transaction, that is it is treated as though you have received payment for the goods or services you have provided and is considered to be taxable income by the Canada Revenue Agency.

Bartering can be a great way to help your business through slow periods as well as build up valuable relationships with other businesses. A classic win-win!

Cut Vehicle Expenses

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If you are running a service or contracting business that requires a vehicle you are no doubt well acquainted with how vehicle costs can affect your bottom line.  Fuel and servicing costs for larger vehicles such as vans, crew cabs, etc. can be astronomical.  Other than reducing business vehicle use to essential travel only, how can you reduce your vehicle expenses?

One way is to not pay as much for the vehicle to begin with.  Buying a new heavy-duty truck or cube van for your business can be a serious wallet-buster, but if are willing to settle for something that isn't shiny new keep an eye on the online classifieds and cruise the dealer's lots and chances are you can find a good, used vehicle in decent repair. 

As an example, a person who owns a company that services lawn/garden sprinkling systems may be able to purchase a used van in excellent condition from a defunct plumbing repair business at a fraction of the cost of a new vehicle.

If you are racking up a lot of mileage on your business vehicle(s) reducing fuel consumption is very important.  Diesel and hybrid vehicles are more expensive to purchase initially but can pay off in the long run with fuel and maintenance savings. Newer trucks are using more exotic materials to reduce weight and improve mileage - it may be worth trading in your gas-guzzler on a more fuel-efficient vehicle.

The U.S. Department of Energy has a website that allows you to calculate the "payback period" for a hybrid vs. non-hybrid vehicle.  For a vehicle driven 20,000 Km per year, it might take 6 or 7 years to break even with fuel savings on a hybrid given the higher initial cost.  The more mileage driven per year, the quicker the payback.  The payback period for diesel vehicles is typically much shorter than for hybrids.

Unfortunately for those wishing to "go green", electric vehicles are still expensive for most small businesses, even with the rebates and incentives offered in various jurisdictions.

If your business is just starting out or finances are tight, leasing a vehicle has a number of advantages, including fixed monthly costs, the ability to return the vehicle at the end of the leasing period, and freedom from depreciation and maintenance costs.  Most leasing companies offer lease purchase agreements so you can buy the vehicle at the end of the lease term if that makes sense.

If you are debating the pros and cons of leasing vs purchasing a vehicle it is a good idea to get your accountant involved - he/she can review your business finances and make the appropriate recommendation.

Cut Supply Costs

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When it comes to wholesale supply costs, every penny saved is a penny earned. If you are running a business such as a restaurant that regularly makes a lot of wholesale supply purchases getting the best deal on supplies can make a huge difference to the bottom line.

As a business owner, this means that you need to be constantly monitoring supply costs by checking for discounts and investigating alternate sources.  As an example, a friend of mine runs a bakery and for years had been using the same wholesale supplier for flour. While browsing through a recently-opened warehouse store in town she noticed that they were selling flour in the same quantity for 25% less. This gave her the option to either go back to her existing supplier and ask for a 25% discount or switch suppliers.

Some people find it embarrassing to ask for discounts. Don't be — many businesses will offer discounts on products and services to other businesses. Just remember that you may need to reciprocate at some point!

One way to increase your odds of getting discounts is to make yourself popular with suppliers and other businesses by paying your bills promptly. In addition to damage to your business reputation, late payment fees and credit card charges can add up to thousands of dollars a year. Some suppliers also offer discounts for early payment.

"Co-opetition" is another way of reducing supply costs.  This involves finding other businesses (even competing ones) and pooling your resources to save money on supplies and goods. The concept can be extended to other aspects of business as well — for example sharing office space or advertising costs.

Cut Advertising Costs

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Most studies by business groups indicate that on average small businesses typically spend approximately 5% of revenue on advertising. This figure can be substantially higher for service businesses (which are typically higher margin-oriented) or for businesses that are just starting out. 

With more potential customers online than ever before, advertising does not have to be expensive. Start with building an online presence by creating a website and/or creating a Facebook pageTweet about your business on Twitter, and create an email newsletter. Some restaurants send out a weekly email newsletter with menu selections and specials of the week.

Cold calling, asking for referrals, and always carrying business cards are also inexpensive ways to increase your marketing profile.

Cut Insurance Costs

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For most small business owners the annual insurance bill is a major hit to the bottom line as insurance premiums have skyrocketed in the past decade.  However, since a lack of sufficient insurance coverage could bring down your business it is best to get as much business insurance as you can reasonably afford. 

As a business owner, you should perform an annual review of your business insurance requirements.  Sit down with your insurance broker and discuss all aspects of your insurance coverage and have them shop around to get the best deal.  There can be surprising differences in rates for the same coverage by different insurance providers.

If you have a larger business with a lot of insured assets you should do an asset review along with your annual insurance renewal and make sure that you are not insuring assets you no longer have.

Increasing your deductible is one way to reduce your premiums. Just make sure that the amount of your deductible is not so high that it would be unaffordable for your business if you had to make a claim.

If you are a member of a business or professional organization you may be able to take advantage of group rates. The reduction in insurance costs can often more than offset the costs of membership. Organizations such as the Chamber of Commerce offer insurance plans to members. Companies such as Encon specialize in providing business insurance to professional Architects, Engineers, and IT professionals.

Upgrading your business premises with fire alarms, sprinkler systems, and security systems or patrols can make you eligible for insurance discounts. The lower your risk from the insurer's point of view the lower your premiums are likely to be.

If you are operating a home-based business be aware that your home insurance will not cover your business activities!  Make sure your insurance broker is aware that you have a home business and that you have adequate home and business coverage.

Make the Most of Your Time

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If you are a busy small business person you know all about time crunches.  Business owners should always be prioritizing and directing their activities to make the best use of their time but surprisingly many do not.

One acquaintance of mine who owns a business regularly spends an hour or more driving across town to a big-box office store to pick up supplies, when the store offers free next-day delivery.  Another spends a couple of hours during the day answering personal phone calls or text messages and winds up working late in the evening to get caught up on business-related work.

In defense of this behavior, we're sometimes told that "business is slow and I have time to do these things during business hours". Our response to this is always "if business is slow aren't you better off spending the time on advertising/marketing to bring in more business?"

Making the most out of your business day comes down to effective time management. Some tracking of daily activities, goal setting, and prioritizing can streamline your work day, reduce your stress level, and get you focused.

Keep the Taxman at Bay

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Minimizing your tax bill can be the most beneficial way to improve your business bottom line.  This means maximizing of all your available deductions - make sure all the business expenses described above are properly entered as deductions on your tax return.

Get in the habit of keeping track of all business expenses by saving receipts (preferably filing them as soon as you collect them), and recording vehicle mileage when traveling for business purposes.

If you have family members working in your business they are treated like any other employee for tax purposes - which means they are a business tax deduction.  To qualify for the deduction make sure that each family member properly records hours worked as do regular employees.  Also, the salary or contract rate must be commensurate with the position (and age if the employee is a child).

Switch to the Cloud for Your Business Computing Needs

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For most businesses (especially startups), cloud computing is an excellent way to reduce both capital costs and ongoing expenses related to IT services.

With cloud computing, gone is the need to purchase and maintain expensive servers on site, as well as pay for ongoing software upgrades. By using the cloud you will always have access to the latest versions of business applications and the flexibility to increase your bandwidth or storage on demand.

Your cloud provider will also take care of most data recovery issues, freeing your business from the requirement of maintaining a complex IT disaster recovery plan.