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Small Business Finance: Minimize Expenses

Provided by Visa, Content Partner for the SME Toolkit

Cutting Costs

There's an old business maxim: Success is not based on how much a business takes in, but on how much it does not spend. In other words, the easiest way to increase profits is to lower expenses—whether that means lowering variable expenses (expenses that fluctuate based on your sales) or fixed expenses (expenses that don't vary from month to month).

If expenses keep rising, how do you go about lowering them? There's no secret to lowering costs. Determine your major costs and research alternatives for pricing and quality. If, for example, you're trying to get a better rate from your landlord, you can't do it without accurate marketplace knowledge about comparable rents. At the same time, keep in mind that the lower price quoted for that cell phone vendor, freight company, or importer, may also mean lower quality services (always a possibility). So, research should never be limited to price alone.

Ask for Price Breaks

A penny-pinching mindset can sometimes be helpful but more important is a willingness to negotiate with everyone over everything. You may find it hard to ask for a price break but as the maxim goes: You'll never know unless you ask. Once you get over that hurdle, you may find that the attitude of negotiating price reductions is addictive.

Can you guess the top six small business expenses in the US?

According to a 2006 National Federation of Businesses (NFIB) survey, the top six small business expenses include:

  • Cost of goods (materials and supplies that are direct costs of goods),
  • Inventory acquisition and management,
  • Wages, salaries and commissions,
  • Employee benefits,
  • Energy (electricity, gasoline, natural gas, etc.), and
  • Rent

Other lesser expenses include interest expenses, vehicles, business insurance, and business taxes. The business expenses that appear to be the most modest for small business owners are marketing and advertising, and professional services.

Spending and taxes.
Sometimes it pays to buy that new computer; sometimes it doesn't. Find out how spending can lower your taxes.

Fixed expenses.
Have you thought about lowering insurance costs or reducing lease payments? Consider ways to chip other fixed expenses.

Employees versus contractors.
Your choice of worker—independent contractor or employee—can make a big difference in your balance sheet and cash flow.

Inventory Costs.
Do you have an unnatural relationship with your inventory? Maybe it's time to end that love affair and cut some inventory costs.

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