Saving money is ingrained in us from birth, whether it’s putting coins in piggybanks or our allowance in a cookie jar. The methods may be different today. The concept remains the same.
Given the tough times, small businesses need to save money for that rainy day, get out of the red, to using that saved money for expansion.
Here are five ways to do it.
Budgets, budgets, budgets
Having a budget is a great way to manage money and ensure that you are aware and accountable for your valuable business dollars.
A client of mine sets a date annually to create monthly budgets. They send in their financial information monthly. We provide them with a report on the budget for their actuals (physical commodities delivered at projects’ completion). They analyze where they overspent/underspent and make changes to their business.
Evaluating more frequently will lead to real-time decisions that will save you real-time money.
Assess/reassess your business needs
Do you really need that new fancy car? Big office space? Trips to the golf course for “marketing”? More staff?
Eliminating unnecessary costs will result in better bottom lines and more money in the bank. Some of the cost areas to evaluate include overhead, staffing, equipment, marketing and operating costs.
One of my clients tracks all their clients signing up against the dollars and methods of advertising they are using to see what is effective, and where to get the best value.
Are you still paying outrageous prices for smartphones, phone lines, merchant fees, interest on financing?
Pick a few of your vendors, and let them know that you want a better deal. Sounds simple? It is! I have called all my vendors up, informing them that I am looking for a better deal. In some cases, I was able to negotiate lower rates. In others, I thanked them and went shopping for a new provider. Shopping around for the best deal can not only save you money but get you better products or services.
It is common for companies to remain complacent with their current vendors. But that hour or so of time could save you hundreds of dollars a month and pay for other bills.
Efficient tax planning saves money. The more you save on taxes, the more you will have in your bank. A common question is, “What am I able to write off?” The answer will make a huge difference on your bank account. You will claim these expenses and save money on tax.
When I mention record-keeping, some of my clients want to run for the hills. But keeping organized records and every receipt ensures you don’t miss any deductions when writing off expenses. This will save you those painful tax dollars.
If you’re on the fence about incorporating versus remaining as a sole proprietor, get that important advice that you need right away. Making that decision could save you thousands of dollars.
Lease versus finance versus buying
When looking at purchasing a vehicle, office or equipment, a common question is to lease versus buy. On any financing contract, you will pay interest that will end up costing you more for the item. However, this interest is a tax write-off. Your cash flow will be more moderated in a lease/finance agreement as you pay monthly rather than all at once. At the end of a lease, you may not own the asset.
On a cash purchase, you will save the interest. However, you will have to pay the cash all at once. Again, saving money in all other parts of the business could save you enough to buy the assets that you need.
Another thing to consider is opportunity cost. That money you pay up front could earn you more income if invested on revenue-generated activities, such as marketing or staffing.
Before you make any big decisions, get your professional advisor to analyze this decision. Each business is different.
The preceding is for information purposes only. Prior to making decisions, contact your accountant for advice.
Simeen Gaidhar-Bhanji, CA, owns Simeen Bhanji Chartered Accountants, which offers a variety of services to corporations and individuals, ranging from tax planning and consulting, compilation, reviews and audits of financial statements, corporate and personal tax returns, HST services, and consulting for internal control, financing and tax.