As a small business owner, you’re battling on a lot of different fronts right now.
You’re doing your best to keep employees happy, raise prices without driving away customers, pivot to alternative supply options as your current ones dry up, adjust for changing tax laws, etc, etc, etc.
We small business owners always seem to bear the brunt during economic downturns. And because we’re the backbone of our economy, it matters that we not only survive but, you know, THRIVE.
And MY Knoxville small business is about helping YOUR Knoxville small business find its way to solid ground – even if just by helping you to know that you’re not alone (but, ahem, we can do so much more).
So if you need some time to just talk over a specific financial decision, or navigate your future tax liability (i.e. REDUCE it), that’s quite literally what we’re here for:
Now, there is something you can do … now.
While I almost always advise my clients to work on raising the topline revenue before cutting expenses (simply for morale and psychological reasons), as ol’ Dickens said: These are the times that try men’s souls. It might be necessary to cut sometimes.
But there are some FAR superior ways to do this than by firing an employee or chopping necessary overhead (though there are ways to work through that too).
So let’s jump into what I mean, shall we?
A Cutting Expenses How-to for Knoxville Small Businesses
“Spare no expense to make everything as economical as possible.” – Samuel Goldwyn
Every expense of your small business is one more drain on your bottom line. The good news: Every expense might also be a way to save money.
This next article in our inflation series looks at how you can cut a variety of expenses as inflation now runs hotter than any time in the past 41 years.
The starting point for cutting expenses: The costliest items
Your major biz expenses are probably payroll, rent/lease, and equipment. If you’re a new business, you’ve probably also shelled out a lot for inventory and marketing, and startups report being surprised by their first business tax bills, as well as by the price tags of insurance and tech.
Your ax has a lot of potential targets. Where to start?
Let’s get right to the big one on many minds: Payroll.
Compensation usually makes up more than a quarter of your expenses – sometimes more – and like everything else these days, it’s only going up. You want to avoid pay cuts and layoffs (both can hurt you in the long run) but at least make sure your new hires aren’t using a tight labor market to talk you into overpaying. You probably already have a firm idea of what your profession pays, and there are lots of sites out there, such as Glassdoor, where you can compare salaries before you make an offer.
It’s also easier – and usually cheaper – to keep the people you have rather than hire new ones. The replacement cost of an employee can be 150% of their annual salary or more.
Big reasons for resignation include low pay, bad working conditions, bad management, and being forced to return to the office after working remotely. Younger workers appear to be leading the charge for the door. Talk to your employees to see what would keep them happy. Flexible paid time off seems to head most lists.
Your cheaper options for workers? Freelancers and independent contractors tend to be more expensive upfront but you don’t pay health insurance and other perks or payroll taxes. Note: Tax authorities are tightening the definition of “independent contractor” and you can’t just slap the label on a worker without agreeing to other conditions. Check with us if you have any questions.
Your local college may be able to set you up to hire interns, who in exchange for little or no pay will receive college credit. This can also be a great recruiting avenue for you but, again, you must use care to set this up legitimately.
The second place to look when cutting expenses: Your lease
Your office space is probably your next biggest expense. First and most obviously, do you still need all that space? Are more workers remote and everybody’s grown comfortable with that? (Some companies have estimated that for every five workers going forward they’ll only need three desks …)
That’s a lot of square footage saved. Can you tinker with your lease? Many commercial leases are long-term but you might have wiggle room to negotiate as your business changes. Assuming you’ve been a good tenant, work with your current landlord first. If you’re looking at a new commercial lease, look for the length of the lease, see how the rent stacks up against others in the area and watch for details like future rent hikes.
A good rule for dealing with landlords also applies to vendors, contractors and others who provide services where you might be able to save money: Many are open to negotiating. There’s never any harm in asking, especially if you only use their services occasionally.
Other areas to examine when cutting expenses
Recurring costs. Rather than utilities and other necessities, these are your subscription services that get renewed automatically, usually every month. As time goes on and your memory gets foggier, they can be a tremendous and useless drain of money. Review them frequently.
Marketing. Watch your ROI. There are a lot of options now that may be cheaper than an ad in the local paper, such as online and social media. Get somebody involved (maybe part-time) who understands how to get a message across on these platforms.
Supplies. Once they do the math, many biz owners are surprised at how much their office supplies cost. Track your usage and you’ll find a lot of items you can eliminate or cut back on. Shop around, of course, and buy in volume where you can.
Insurance. This is a weird recurring cost in that it might change year to year. Auto-renewal might be costing you money here. It’s also the most likely expense where you can save by bundling.
Equipment. A lot of devices perform more than one function now (printers especially). Professionally refurbished equipment can also be a real bargain – just make sure you know the decreased life expectancy and performance.
While cutting expenses forces you to face some harsher realities, we can help walk you through it. In times like these, it’s helpful to have a knowledgeable advisor in your corner to help you steer through the potential obstacles and keep your business thriving.
If you wanna talk, we’re just an appointment away:
And even though the pressures have been mounting, don’t give up. You got this.
We’re here for you,
EDH Tax Solutions