Costs are what happens when a business operates. However, business expenses come in a variety of forms and the more you know about them, the better equipped you are to reduce them.
1. Common Business Expenses
Bloomberg reported that 9 out of 10 business fail. One of the major reasons is that they are not on top of their finances and expenses play a big part in that. Fortunately, some expenses are tax-deductible, meaning they will help you pay less tax and therefore, benefit your bottom line.
Allowable tax deductions are those that the IRS considers as ‘necessary and ordinary’. To begin with your employee payrolls and hired freelancers, followed by your rent, utilities, furniture and equipment. Then there are also bank and interest fees, insurance, meals, along with employee retirement, education and benefit plans. A company car, software, travel, subscriptions that enhance the quality of your offering, advertising and legal fees also may be at least partially, if not fully, tax-deductible.
If you are running your small business from home, you could be allowed to deduct partial expenses for your home office as long if it’s your headquarters, followed by mortgage interest, property taxes, maintenance or upkeep, business phone line and insurance. Just keep in mind you cannot deduct your personal expenses.
To sum up, expenses can be fixed such as rent, variable such as paying freelancers and overtime which are often take the biggest chunk and periodic that don’t happen frequently such as repair.
2. How To Cut Your Business Costs
To keep your profit up, at the very least, you need to control your costs as they tend to increase overtime, if you let them. Business expenses might be unavoidable business to operate but running a business can cost you less if you do your homework.
Lower the costs of your office space
If the pandemic has shown us anything, it is that even multinational companies can operate remotely. Operating from your home will save you a ton of money on rent, utilities, insurance and daily commute. If commercial premises are necessary, you can choose a less expensive quarter and negotiate favorable terms.
Cut staffing costs
Hire contract workers or freelances if you have seasonal demand and therefore risk your employees sitting idle at some point or another. One perk of small family-owned businesses is that you can get your family to help and hire an unemployed millennial, giving him or her valuable work experience and boosting his or her self-esteem. Hired family members are a fully-deductible tax expense just like other employees.
Be a smart shopper
Whatever it is that you need to purchase, from supplies to your utility provider, make sure you make an apples to apples comparison to get the best deal. out there.
Exchange your goods for what you need
Before money was introduced, people functioned via an exchange. If your neck is sore from sitting behind a computer all day, ask a physiotherapist if he or she is willing to give you a treatment in exchange for something you are an expert in. Keep in mind that business bartering is treated as a normal business transaction because you received a “payment” for what you provided, and therefore the benefit you received is taxable. This can be a great way to support your business in times of low activity, while building new valuable relationships and perhaps even gaining new customers.
Cut advertising costs
If the internet and social media made anything possible it is to cut advertising costs. Build your online presence with quality content, use social media to reach your audience and enjoy free publicity.
Make the most of your time
Know your worth and the value of your time. Delegate picking up business supplies to someone else if you can make a potential sale at that same time.
Takeaway – The fact is that running a business costs money but you do have a say in the final amount. Your business needs profits to operate for the foreseeable future and controlling or, even better, reducing your costs is the best way to protect your bottom line.