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Ask the Expert

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Put the lid on business expenses

Posted: September 12, 2008 10:16 p.m.
Updated: November 14, 2008 5:00 a.m.
 

One of the biggest mistakes business owners can make is saddling themselves with too much overhead.
Entrepreneurs of any business need to take reality checks to analyze their buying habits and to see if those habits are worthwhile.

The following penny-pinching suggestions can help you tighten your belt in a number of areas that affect overhead.

1. Location. Work out of your home if at all possible rather than renting an office with all its associated costs. Some businesses such as retail, food service or those with a number of employees can't be run out of your home effectively.
All too often though, business owners pass up the home option and delude themselves into thinking that fancy digs will reap customers.

2. Find low-cost rental space. If you need to rent office, warehouse or retail space, search for the lowest costing location that will meet your needs. Rents can vary even on a single block.
Avoid the temptation to rent in a high-cost building and, if you must, consider shared office space arrangements. It may not seem significant now, but a high rent can really drag down a growing business.

3. Negotiate hard on office rentals. Never take the landlord's first offer without trying to negotiate.
Consider using a broker who can locate a suitable rental and negotiate favorable lease terms

4. Don't go overboard on renovations. Whether your office is at home or in rented space, keep office renovations in check. There's always time later when you're enjoying an abundant cash flow to spiff up the office.
Don't waste precious working capital on renovations until you can clearly afford them.

5. Buy used office furniture. Used, low-cost office furniture is in abundant supply. There's no reason why a small business needs to adorn its offices with fancy, new furniture when attractive, pre-owned is available.
Check out the local classified ads and Yellow Pages for used furniture deals in your area.

6. Cash management. When it comes to professional services, be fee-conscious.
Most successful small business owners require the periodic use of professional advisers, particularly lawyers and accountants. Remember, your professionals are retained by you and are working on your behalf, so there's no reason not to show them from the outset that you're concerned about controlling their fees.
If you don't, you might be in for some unpleasant surprises when your bills arrive in the mail. Make sure your professional advisers know your position about cost and that you need to be kept up-to-date on any work in progress.
Where possible, try to agree upon a fixed fee for a particular service rather than an open-ended amount.

7. Send out bills regularly. Don't let your accounts receivable mount. It's easy to overlook or postpone billing when your immersed in day-to-day operations, but collections are your lifeblood. Prepare bills on a regular schedule.

8. Be firm with accounts receivable collection efforts. Don't let customers take advantage of your good nature. The "little guy" gets paid last.
If I do business with a vendor that I know is an entrepreneur who owns his own business, I'll usually pay him first if there's any money-jockeying that has to take place. I know that he doesn't have the "cushion" that corporations have to withstand "slow pays."

9. Don't pay your accounts payable too soon. Vendors will love you if you pay your bills early, but it only ends up costing you money. Set up a file for your accounts payable so you will pay them no sooner than on time.

10. Consider subcontracting manufacturing during the initial stages. If your start-up involves manufacturing, farm out your product's manufacture instead of investing large sums on your own facility.
Delay establishing your own plant until you're certain there is a sufficient demand for your product to justify a major capital investment. Subcontracting might at first increase your production costs on a per-unit basis, but that's a minor drawback compared to what might happen if demand for your product is sluggish.

11. Use independent contractors if you can. If you can use independent contractors, you can avoid paying the high costs associated with full-time employees including Social Security taxes and fringe benefits.
Be cautious though because the IRS is clamping down on individuals who abuse the rules.

12. Shop for low-cost insurance coverage for yourself and employees.
You never want to go without sufficient health, disability and life insurance as a business owner. Even a "one-person" shop can usually participate in a low-cost group insurance program that provides life, health and disability insurance.
Local or state business associations should be able to provide you with information on these programs, and your own agent can alert you to group insurance programs for small businesses.

These are the first 12 penny-pinching tips to help you rein in your business expenses.

There are 36 in all and in next week's column we'll discuss the next 12.
Keep the cash flowing!

Maureen Stephenson is a local author and owner of Santa Clarita-based REMS Publishing & Publicity. Her column represents her own views and not necessarily those of The Signal.

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