The give and take between capital and expenses is a hallmark of business ownership and one of the great tests of an entrepreneur’s business acumen. Small business owners must continually monitor expenses because they directly impact salaries, inventory, hard costs, etc. The chief priority of a business owner is to preserve capital so that it can be allocated in ways that grow the business and provide a hedge against the unexpected. As a new business owner, it’s in your best interest to operate lean and save money on everything from personnel to third-party vendor costs.
Kicking Off Your New Venture
In the early stages of starting a new business, there’s a to-do list a mile long. And while it’s tempting to prioritize things like building your network, careful thought should also be given to forming your legal business entity. Not only is this a requirement by the state, but setting up an entity type like an LLC will also help protect you as the business owner. The good news: while it varies by state, forming an LLC is usually completed in about five steps.
Watch Overhead Carefully
Don’t be tempted to spend lavishly on office space and fancy bells and whistles that you hope will impress potential clients. Check into alternative technologies that can help you manage utility and phone costs. Consider renting low-cost office space or, if you’re a small business owner, save substantially by using meeting rooms at the library. Make use of energy efficient equipment and programmable thermostats, and watch for online discounts on office supplies. Remember, fixed costs can be a major burden on a new business, so try to operate on as tight a budget as possible.
As a new business owner, you should establish a review process so you’re up to date on expenses. You need to be fully apprised in order to make educated, well-informed decisions when it comes to allocating funds responsibly. If you don’t fully comprehend how your company’s cash position, financial performance, and account payables impact the bottom line, you’re operating in the dark.
Staying on top of things will save you a lot of money. Make use of a free accounting software program — an effective cost-savings measure — to help schedule payments and track costs that are key to your business and stay on track with tax responsibilities. Remember, it’s a mistake to wait until tax time to review and adjust expenses.
Carefully Manage Personnel Costs
Keep a tight rein on personnel expenses by arranging duties so that existing staff is handling as many responsibilities as possible. If you’re a small business owner, there may be several roles you can handle yourself, which will save money and help you assess your company’s actual personnel needs. Remember, personnel benefits and taxes are a financial burden along with salary, so be judicious about hiring, especially if your company is new. As a cost-saving measure, consider using contractors and part-timers to help keep expenses under control.
Inventory management is another major burden for small businesses. Establishing an inventory management system will help you keep track and avoid excess inventory, which can be an obstacle to sales and long-term growth. Adjusting your inventory on a regular basis can help free up cash flow, but you’ll need a tracking mechanism to know where your money’s going and when there’s missing inventory, which is a major problem for new businesses. You’ll save money in the long run, and it’ll be easier to stay on track financially.
Review and Negotiate
Don’t forget to review shipping costs annually to make sure you’re on good payment terms with your shipping company. Consider negotiating for better terms, which you should do on a regular basis with all third-party vendors, right down to your tax preparation fees. Sometimes, companies are willing to offer discounts if it means retaining your business.
The golden rule of business is to keep expenses low and profits high. That’s especially important if you’re a new or small business. You can always find ways to cut costs, and it can help keep you afloat when you’re just getting started.
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