Tough Economy Getting You Down?
Tips for reducing your budgets and surviving economic shifts.
Everyone is feeling the pinch of recent economic shifts. With gasoline prices being so unpredictable, the trickle-down has impacted almost every major industry from groceries to home heating oil leaving small business owners faced with difficult choices in order to keep their doors open. But all is not lost. With some strategic financial management, small business can not only survive this downturn, but thrive and beat the competition to the other side.
Here are a few simple steps that can help reduce costs and position your business for success.
1) Reduce energy costs. For companies with a few or even a fleet of vehicles, make sure that regular maintenance is performed. That means oil changes, tire pressure, air filters to name a few. By keeping the vehicle performing at its optimal efficiency, you can reduce fuel usage by several gallons each week. Try to bulk up on trips and schedule appointments by region so multiple trips aren't necessary. If clients are in your area, encourage them to come to your office rather than scheduling out of town meetings to visit them. Spread over an entire fleet, those gallons can add up to hundreds or even thousands in savings.
Inside the office, be sure to use energy-saving programs for computer monitors and put systems on automatic sleep mode. At night, be sure that staff members turn off their systems and shut off all lights when not in use. Compact fluorescent light (CFL) bulbs can reduce energy costs by $30 over the life of the bulb when compared to the cost of traditional incandescent bulbs. The CFLs produce 75% less heat, consume 75% less energy and last 10 times longer, making them the obvious choice for energy reduction programs.
If you're not already using automatic thermostats, now is the time to have them installed. Maintaining consistent room temperatures and automatic night and weekend reductions to 65 degrees can drastically cut winter heating bills. Conversely, keep the thermostat set at a constant temperature for summer months and bring in a few fans to help circulate air. Using a simple fan can help reduce room temperatures by two to three degrees making those hot summer months far more comfortable and affordable.
2) Be frugal, yet practical when it comes to purchasing office supplies and materials. Don't be persuaded by bulk purchasing incentives unless you really need 300 pencils. If you're purchasing inventory for a retail location, buy shrewdly and rotate stock weekly in order to encourage movement and product interest.
Double check your current pricing structures and adjust where appropriate to incorporate some of the rising costs faced by your business. It is absolutely critical that every business owner have a firm understanding of what the business needs in sales to break even. While no one wants to raise prices, in an economic downturn, a price increase may be understandable and even necessary for your business to survive.
3) Watch payroll costs. Adjust pay structures where possible to be performance based including a possible shift from larger annual raises to a one-time bonus payout. This will help curtail increases in budgeted salary costs while still showing the employee that s/he is valued. Often times, bonuses can be given and will meet or exceed what a traditional salary increase would have been. As bonuses are distributed, remind employees that bonuses are not something that can be relied upon from year to year but are a reflection of how well the company is performing financially. Be creative with bonuses and make extra efforts in tight financial times to assure employees that they are not only valued but a necessary part of your businesss success.
4) Review all insurances with your agent, particularly health and workers compensation insurance. Insurance is highly competitive market where prices can vary hundreds or even thousands of dollars from one carrier to another. Don't just renew insurance policies without a review. Sit with your agent and perform at least an annual review to be sure that any changes in the business are accounted for and covered.
5) Know your business. Business owners should be reviewing their income and expenses for the month and year to date, reflecting percentages as a percent of sales, include a comparison to the previous year. This helps the business owner to understand their Gross Profit Margin, how much sales they need to break even, and better understanding of the effect of the economy on their business. By doing this type of comparison with all accounts and thoroughly reviewing all reports monthly, it will be easier to catch any dramatic shifts and make adjustments before the budgets are severely impacted.
For more advice on how your small business can not only survive these recent economic changes, but thrive in them, contact your accountant.
Steven A. Feinberg, www.AppletreeBusiness.com