A business that controls costs most effectively has an advantage over its competitors through improved profit margins. There’s no secret to where you should look for savings. However, the savvy business owner is diligent about tracking down each opportunity to reinforce the bottom line. Look to the following areas for the best chance to uncover the biggest savings.
The starting point of every income statement is revenue — the dollars flowing into your company. While bringing in more money may not seem like a cost saving, increased revenue makes every expense a smaller percentage of sales. Inc.com recommends querying your existing client base as a source for revenue-boosting opportunities. Getting feedback about your customers’ after-sale experiences may provide insight into client needs.
Costs of Goods Sold
Training website Accounting Coach.com defines cost of goods sold as the cost to a retailer, distributor or manufacturer for the products that it, in turn, sells. When you negotiate a better price from your supplier for all or part of a product you sell at a consistent price, your gross profit improves. For example, a cleaning service may find a supplier that sells floor wax 25 percent cheaper than its current provider. The cleaner can now serve its clients more cost effectively, saving a bit on each job involving floor waxing.
Periodically testing the waters on things like phone contracts, waste management and equipment leases may not only lead you to more affordable suppliers, it lets your current providers know you’re serious about controlling costs. Many of these fixed expenses are considered the cost of doing business, but the savvy business owner knows that a dollar saved in overhead is a dollar added to profit. The Business Development Bank of Canada warns against getting complacent with fixed costs, encouraging multiple quotes for any major purchasing decision.
The Internal Revenue Service considers legitimate business expenses to be those which are ordinary and necessary. When these costs are common for your industry and needed to conduct business, they may be deductible from company earnings, thereby reducing your tax burden. Examples of some qualifying deductible expenses include costs such as staff pay, office rent, insurance and employee retirement plans. Some business owners may be able to claim business use of their home and car as well.
Many businesses borrow money to smooth out bumps on the cash flow road. This is a time-tested way to keep operating smoothly, but it’s an expense that will need to be repaid from revenue generated. Entrepreneur.com points out that staying on top of your receivables keeps your cash flow current. Common strategies to get paid quicker include obtaining deposits at the time of order, prompt delivery of invoices and quick response when an account goes overdue.
The content above is for informational purposes only. The information should not be relied upon as replacement for professional tax advice.