Today, I want to share 22 of my favorite ways to save money in your business.
When it comes to owning a business, your number one goal is to make a profit. There are two ways to do this: increase sales and/or decrease expenses.
While your major focus should always be on increasing your sales revenue, you should also spend some time and look for ways to stretch the money that you do have.
Top 22 Ways to Save Money in Your Business
What you will see below are my best tips and tricks. I have learned these things mostly through trial and error during the past 17-years. They are listed in no particular order.
# 1: Run Your Business From Home
If possible, run your business out of your own home. This will save you a lot of money in rent and utilities, plus you will be able to take advantage of the home office deduction. Here are some of additional benefits:
Less financial risk: Buying a building or signing a long-term lease for a traditional business is very expensive, scary and risky. When you start a business from home, you are not accruing any additional “rent” expenses. This saves you a TON of money.
More personal freedom: Depending on what you do, when you work from home you save yourself time from commuting. You don’t have to have set business hours. You can wear what you want and you have more flexibility.
Improved work/life balance: Working from home will give you a better quality of life. Plus, you can involve your family and always be home for dinner.
Better productivity: This might not apply to everyone, but I know I am much more productive working from home than working somewhere else. Why? Because I love my work environment. I feel comfortable and relaxed.
Reduction in overhead expenses: Working from home lets you keep your operating expenses at a bare bones’ minimum, which helps you save money in your business, reduce your financial risk and increase the likelihood of you being profitable.
The worst thing we can do is get a second job. The best thing we can do is start a home-based business ~ Dave Ramsey
# 2: Negotiate & Barter
When you are purchasing things for your business, always try to negotiate or a better price. Ask if there is a veteran’s discount, a loyal shopper discount, a small business discount or whatever else might apply to your unique situation. Most prices are flexible. Besides, the worst thing you will hear is the word NO.
Also, if you are low on money, you could barter your services for the goods or services you do need. For example, a plumber might barter ten hours of their time to install a new bathroom at a SEO company, in exchange for the company building them a website and helping them with SEO.
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.
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.
Source: the balance
# 3: Defer Payments/ Time your payments
One of the most important aspects of your business finances is managing your cash flow properly. By all means, pay your bills on time, but make sure you delay your payment as much as possible. Pay them by the due date, but not two or three weeks early. That way you have more cash in your bank account that you can leverage.
Ask suppliers if they give discounts for early payment. If not, it’s to your advantage to pay your bills-including utilities, taxes and suppliers-as late as possible without incurring a fee, advises David L. Scott, author of The Guide to Saving Money (The Globe Pequot Press).”The longer funds are under your control,” he says, “the longer they’re earning a return for you rather than someone else.”
# 4: Don’t Hire Full-Time Employees
Employees are your worst nightmare. In many cases, they will lie to you, steal to you, and run your bank account empty. Plus, full-time employees come with COSTLY expenses. You will be much better off hiring part-time employees, or even better, independent contractors. You can also hire interns.
Bibby Gignilliat, founder of San Francisco-based Parties That Cook, found marketing interns from local schools for help with building the business’ social media program. “They blogged, tweeted and posted to Facebook regularly,” says Gignilliat, “which helped us improve our Search Engine Optimization and get more business.” And using interns rather than full-time employees cuts way back on expenses, from salaries to benefits to office space. Combine this strategy with telecommuting and you’ll be able to get a lot of work done for a fraction of the cost.
Source: American Express
# 5: Outsource Non-Essential Functions
As a CEO, your time is valuable. Do not spend your $100 per hour time doing $10 per hour tasks. Learn how to delegate or outsource. Determine which tasks are most important (sales and getting customers) and hire other people to help you do everything else.
Vinoth, CEO of Apoyo Corp (an offshore outsourcing company) says “Retailers like WalMart outsource their data entry work of converting shopping bills into e-format. They choose to outsource because it’s a smart way to run the non-core activities by saving huge time.” Your small business can do the same. If you would rather keep employment in the states, you can consider using college students or parents who are looking to take on a few hours of work while the kids are in school.
Source: Small Business Trends
# 6: Maximize Your Tax Deductions
Take some time and sit down with your bookkeeper or CPA and educate yourself on what you can and can’t deduct. You’ll probably have to pay for an hour or two of their time. Trust me, this is money well spent.
Never try to cheat the system, but always take EVERY legal tax deduction that you can. Not taking your deductions is like throwing away money for no good reason.
In life, it’s said that two things are certain – death and taxes. But in business there’s only one certainty: taxes. Tax obligations go hand-in-hand with running a business. From the federal government on down to city hall, you need to be aware of which taxes your business needs to pay, how much in taxes you owe, and when you need to file. Make a mistake and your tax bill grows. At the same time, if you plan ahead, take the right available deductions, and prepare your tax returns properly, you can save on the amount of taxes your business must pay.
Taxes may be the least favorite topic for small business owners, but it’s one of the most important. The steps you take before the end of the tax year can help your business save money almost immediately. At the same time, the beginning of the next tax year is a good time to review whether you are maximizing your deductions and maybe even get a second opinion on additional ways you can save on taxes. Knowing how to minimize the amount of taxes you pay means that you get to keep more of the money you earn. Failing to properly manage your taxes means that your business might wind up in trouble.
# 7: Have Trusted Advisors
Every small business needs a few trusted advisors. At a minimum, you want a good real estate agent, lawyer, insurance agent and CPA. You want these folks on speed dial and you want a good relationship with them. Any money you spend on them is tax deductible and is money well spent. This is one area you do not want to be cheap with.
The truth is, our peers, friends, family and staff can provide helpful insight, and you don’t want to discount the importance of their advice. But, you also want to seek out formal trusted advisors who have a deep understanding of your business, along with the wisdom you need to compensate for your blind spots.
As entrepreneurs, that’s the kind of guidance we really need — people who have no motives other than to make sure we succeed. We need people with varied points of view who are well equipped to help us prepare for the big moves that will significantly impact our businesses. We need people who are committed to helping us arrive at sound decisions that guide our companies to healthy and profitable futures. In short, we need trusted business advisors.
# 8: Evaluate Each Business Expense Once Every 90-Days
Once a quarter, take a few hours and go somewhere quiet. Look at all of your business expenses for the past 90-days. Evaluate each expense. Do you really need it? Are there cheaper or better options? Are you being over-billed? Is there any way you can save money with that expense or eliminate it? Chances are you will find at least 2-3 expenses you can eliminate, or at least find a cheaper and better alternative.
It’s just smart business practice, but it’s often overlooked until tough economic times force you into it. Ian Aronovich, of GovernmentAuctions.org remembers that, in 2009, they analyzed all company expenses to cut anything unnecessary. Small cuts in ongoing expenses can add up to large savings over the long-term. Review everything that isn’t providing a ROI, cut back to the bare minimum, and completely eliminate anything extraneous.
Source: American Express
# 9: Take Care of Your Customers
One of the best ways to save money in your business is to take care of your customers. Your customers are your greatest source of referrals. Treat your customers like gold. Stay in touch often. Have a good up-sell and cross-sell program. Have a loyalty rewards program and a referrals program. This can save (and make you) a lot of money.
If you don’t take care of your customers, your competitor will. ~ Bill Hooey
# 10: Form Strategic Alliances
Another great way to save money in your business is to form strategic alliances. This is when you team up with other local business owners and collaborate. You share customers and referrals with each other. You do business with each other. You barter and exchange services.
I’ll tell you this: when two or three entrepreneurs work together toward a common good, they can accomplish great things.
Seek out strategic alliances; they are essential to growth and provide resistance to bigger competition. ~ Sir Richard Branson
# 11: Lease a Copier
This is one of the best ways to save money in your business. For example, my wife and I have an eBay business. We print a lot of shipping labels each month. We were spending several hundred dollars per month on inkjet cartridges for our printer.
We shopped around and leased a printer for $113.55 per month. It comes with free ink for life. Plus, it is a LASER printer and prints a much better quality document. Talk about a win-win situation.
If you do decide to lease equipment, keep the term short — two years is ideal. Try to negotiate a “modern equipment substitution clause” that lets you update or exchange your equipment so you don’t end up paying for obsolete technology. And insist upon a cancellation clause that lets you pay a fee to cancel the lease. Note the cost of any cancellation penalty.
Additionally, if you think you might want to purchase the equipment after the term of the lease has ended, look for a lessor that offers an option to buy.
# 12: Buy Second Hand Equipment
You don’t have to buy everything brand new. Before you make any new purchase for your business, ask yourself if you can buy it second hand somewhere else for just a fraction of the price. It might not look “as good” as something brand new, but your checkbook will thank you for it.
Save up to 60 percent by buying used computer equipment, copiers and office furniture from stores such as the nationwide Aaron Rents & Sells chain. Auctions and newspaper classifieds are other good sources of used equipment.
# 13: Go Virtual
Go virtual. Have a virtual office. Have virtual employees or assistants. Put things on the cloud. Instead of owning your own computer servers, use a cloud based service. The more things you can do virtually, the better.
Frugal marketing advice gurus will give you a cloud-based solution before you even finish asking your question, but real small business owners recommend the same strategy. Boyd, of MeetingWave.com, avoids the cost of expensive hardware and uses cloud-based services to host data. Bibby Gignilliat, founder of San Francisco-based Parties That Cook opts for cloud-based software, “such as Salesforce, PayCycle and Staffmate where we pay per annual user, rather than needing to purchase and maintain expensive software in-house.”
Source: American Express
# 14: Deduct Your Mileage Expenses
Keep track of your business mileage is one of the fastest ways to save money in your business. Buy a mileage log. Before you drive anywhere, update your mileage log. Keep track of all of your business mileage. This one thing alone can save you thousands of dollars in taxes each year.
The Internal Revenue Service (IRS) released Notice 2019-02 providing the 2019 standard mileage rates. Beginning January 1, 2019, the standard mileage rates for the use of a car (vans, pickups or panel trucks) will be: 58 cents per mile for business miles driven, up from 54.5 cents for 2018. Source: IRS website
What does this mean? It means that if you have 20,000 business miles in one year, you would be able to legally deduct $11,600 from your taxable income. That is HUGE.
# 15: Fire Your Bad Customers
Not all customers are created equal. You should fire your bad customers as quickly as possible, and focus your time and efforts on finding more good customers. Why? Bad customers take your time, crush your profits and just make life miserable.
As business owners, we often feel that we should take on every client who comes calling. But that’s not always the best choice: Just because someone comes to you who’s interested in a business relationship doesn’t mean they’re going to be a good client. In order to make your business as profitable as possible, you really need to assess your client relationships and ensure that they’re win-win opportunities for you.
This is where the 80/20 rule comes into play: You should be focusing your time on the clients who are most profitable and who fit within your reason for existence. And you need to learn to say no to a potential or existing client when they don’t fit within your business model. Most recommendations are that you should fire the bottom 10% of clients (in terms of profitability) each year so you can focus on your more profitable clients with your limited time.
# 16: Work Less
If you learn to work smart, you can make more money per hour by working less. Make sure you take vacations each year. Spend time with your family. Pursue your hobbies. Why? Because if you lose your health, get divorced or end up hating life, you will lose most of the money your business has earned.
Maintaining personal boundaries is a huge part of self care, and it can also save us money. Because boundaries help us define what is and is not part of who we are, solid ones help us prevent poor spending decisions like competitive spending with friends, feeling pressured to lend others money, etc. If we value our financial health, then, boundaries will help us spend when we need to but not so much or so often that it negatively impacts our financial future.
Investing in self care doesn’t have to be frivolous or luxurious; it often means changing our daily habits so that we are prioritizing our best interests.
# 17: Max Out Your Retirement Accounts
Set up a SEP IRA for yourself and be sure to max out your retirement accounts each year. This will help minimize your taxable income and save you money! As an entrepreneur, you are allowed to invest more money in your retirement account each year than employees are. Take advantage of it!
The SEP IRA Limit Is Increasing in 2019. For those with money to spare, the SEP IRA contribution limit is increasing by $1,000 in 2019, from $55,000 to $56,000. SEP IRAs are traditional retirement accounts for small business owners and employees, including self-employed freelancers. Source
# 18: Pay Off Your Business Debt
Some people would argue that some types of debt are good. I personally don’t think so. If possible, stay out of debt or get out of debt as quickly as possible, so you don’t get stuck paying a bunch of interest or fees. Being debt free is something every business owner should strive for, if at all possible.
Tackle the business’s highest-interest rate debt first, advises Jerry Silberman, chief executive of Corporate Turnaround, a small-business debt restructuring firm in Paramus, N.J. Most likely that will mean concentrating your energies on paying down credit cards. However, if you’ve personally guaranteed any of your business’s debt–meaning, if a creditor or supplier can come after your personal assets if you default–make sure paying off those debts become a high priority as well, he says.
# 19: Get Organized
I probably should have made this tip # 1. You need to be organized. No, not everything needs to be dress-right-dress, color coded, or sorted alphabetically, but you do need to keep your business paperwork organized. Have some type of filing system for your taxes, receipts, invoices, etc. If you’re not naturally an organized person, hire someone for a few hours to help you get set up.
Paul Stagias, an analyst at Francis Financial, a wealth management firm in New York City, suggests setting aside an hour a week. He also suggests having two folders that you utilize during that hour.
“Keep bills you haven’t paid yet in one folder all together. And keep any bills you already have paid, but file them separate in a folder marked ‘paid,’ under headings so you can access them easily,” Stagias says.
Source: U.S. News
# 20: Buy Goods in Bulk
In certain cases, buying items in bulk can be a smart move. Make a list of all of the things you buy for your business and figure out how often you buy them. If it’s something you buy frequently, consider making bulk purchases so you can save money in your business! You might even want to get a Sam’s Club or Costco membership.
Tech entrepreneur and contributor to SMEPals, David Mercer loves to save money on office supplies and equipment — everything from pens and paper to computers, desks, chairs, electronics, software, etc. — by buying only when there are deep discounts on the items he needs. Use apps and tools like RankTracer.com to get up-to-the-minute updates on prices or try Slice App to track packages and take advantage of price drops.
Source: Small Business Trends
# 21: Do Not Offer Credit
Credit can be a good thing. In some businesses, you need to give your customers credit, because they are making large purchases. Whenever possible, try to avoid giving credit to your customer. You do not want to have an accounts receivable. Why? Because not all vendors will pay you. You could be stuck out to dry for the money, even though you delivered the goods on time and to standard.
Remember, you don’t have to offer credit to everyone. Many stores do a credit check and only extend credit to customers who have proven they can make payments on time. Also, you will need to comply with consumer credit laws (Federal Trade Commission) when extending credit.
If you’re considering extending credit, it’s best to create a credit policy and have a lawyer read it. You may be advised to set up an allowance for doubtful accounts (bad debt). You will also want to take a look at how offering credit to customers fits into your accounting.
Source: Patriot Software
# 22: Reinvest Your Profits
When you reinvest your profits back into your business, you do not pay taxes on it, as long as you are spending the money on tax deductible items.
Think of your business like a newborn baby. In the beginning, it needs a lot of love and attention. You need to nurture it, love it and protect it. As it grows, it becomes more independent, and needs you even less.
Whatever you do, do not make the mistake of sucking out all of your business profits for yourself. Reinvest that money back into your business, so you can grow it.
Reinvesting is the best way to build wealth. If you’re a business owner, reinvesting is crucial to your company’s continued growth and success. It’s worth keeping in mind that investing isn’t just about a sudden influx of cash — your time and experience are also extremely valuable.
The exact amount that you should reinvest will vary. The key is to reinvest based on a strategy, rather than a set percentage. Be strategic, and apply funds in line with your specific development plan and your business needs, but don’t invest to the point of cutting other aspects of your company short. Make sure there’s enough to cover all of your other expenses.
In review, these are 22 of my favorite ways to save money in your business. None of this is rocket science, but if you do the best you can to manage the money your business does have, you can make your business even more profitable.
What are your thoughts? What are your best tips on how to save money in your business? What do you do and recommend? Leave a comment below to let me know what you think. I look forward to hearing from you.