When money is tight, the last thing your company can afford to do is waste resources. Unfortunately, this is exactly what the majority of small businesses do. By identifying where you’re bleeding money, you can cut back on expenses and bolster the bottom line.
Check These Drainage Points
In the business world, money is transient. It comes and it goes. As business owner, one of your primary responsibilities is to keep more and forgo less. One of the easiest ways to do this is by analyzing where your organization is bleeding money and to plug these holes with better, more sustainable solutions.
Every business has its own weaknesses and pitfalls, but here are some of the most common ways small businesses unnecessarily waste money:
1. Hiring Instead of Outsourcing
As a small business owner, don’t assume that hiring is always the best option. When you hire an employee, it costs more than just salary. By the time you add in benefits, payroll taxes, and HR expenses, an employer pays an average of $62,500 to $70,000 per year on an employee who receives a $50,000 salary. That’s a 25 to 40 percent markup!
There are times when hiring an employee makes sense, but it’s better to keep your team small and to outsource tasks whenever possible. You’ll stay lean and keep costs low (without sacrificing much in terms of quality or talent).
2. Clunky Business Services
Business service providers used to require long-term contracts with rigid plans and fees. But the introduction of cloud solutions and SaaS has rendered these clunky business services obsolete. If you’re stilling using these archaic options, you’re bleeding money.
Take phone services as an example. In the past, you had to lock into a two-year plan and pay for expensive service, even if you no longer needed it.
“As you know, traditional phone service providers layer on 15% to 30% in additional charges for surcharges, fees, and taxes,” explains Mark Greim, Vice President, sipVine, Inc. “Some of these are legitimate fees collected and passed through to the government regulators. Some are add-on charges for the benefit of the provider’s bottom line.”
A simple switch to a VoIP phone service could dramatically slash your cost of phone services. The same goes for things like internet service, bookkeeping solutions, and even payroll services.
3. Advertising Over Marketing
Both advertising and marketing play important roles in small business growth and development. However, focusing predominantly on advertising at the expense of marketing is a major mistake.
Advertising is expensive. You’re buying exposure and artificially propping your business up with money. While there are plenty of opportunities for return, the exposure disappears as soon as you stop paying for it.
Marketing, on the other hand, is a long-term investment. It also costs money, but it doesn’t fully disintegrate when you stop making a financial investment. Whether it’s content, links, or other online resources, marketing is evergreen in nature.
Nobody’s telling you to stop advertising, but it would be wise to consider shifting some of your dollars over to marketing. If nothing else, it’ll set you up for success in the future.
4. Incorrect Business Structure
When you set up your small business all those years ago, you probably didn’t pay a whole lot of attention to the business structure. You might have met with a business attorney, but you probably just created an LLC or partnership and moved on.
The problem is that many companies use the wrong structure or legal entity, which leads to expensive problems.
Take some time to review your structure and consider whether it’s (a) maximizing your tax opportunity, and (b) protecting your personal assets and business assets as well as it could be.
5. Premature Purchases
When businesses aren’t clear on their objectives, or they don’t have a crisp idea of where they’re heading, it often leads to irresponsible spending and/or premature purchasing.
“Premature purchasing is when a business begins purchasing the things they need for growth, before actually being ready for it,” entrepreneur Dan Western writes. “It wouldn’t be so bad if the growth they were expecting occurred fairly soon after. However, in most cases the business will make the purchases, the growth won’t come and the business will find that their cash flow is struggling to keep up with the expenses.”
Get Your Business Back on Track
If you spend a few hours analyzing your business and examining cash flow, you’ll probably identify a handful of areas that are ripe for improvement. Tackle them one at a time and you’ll gradually notice your finances getting stronger and more predictable.
At this point, you’ll have a solid foundation for future growth.