Cost-Cutting Ideas for Small Business
How to save on shipping, credit-card fees, debt charges and more
By BARBARA HAISLIP
Small-business owners have always tried to pinch pennies—but now keeping costs down is a bigger priority than ever. To find the best money-saving tips around, we turned to the Entrepreneurs’ Organization, a nonprofit that aims to help business owners around the world learn from one another. Here’s what some of the group’s members had to say.
Save on Shipping
Alex Andrawes, chief executive officer of Personalwine.com, says he saved almost $20,000 last year by using a smarter shipping method.
When customers enter their address into the wine seller’s website, the information is automatically sent to UPS, which verifies it and sends Personalwine a code for making a shipping label. Mr. Andrawes says the system—which is also available for other shipping companies and the Post Office—saves hundreds of man-hours on processing orders and prevents mistakes that lead to returns.
Lower the Cost of Debt
The interest rate being charged on debt is more important than the amount owed, says Charles D. Katz, an accountant in Sudbury, Mass. So, he advises listing all debts owed by your company, starting with the highest interest rate and going on down. Pay the minimums on the lower-cost debts, and pay off the highest-cost debt as fast as possible.
Let Workers Telecommute
Craig Smith, founder and CEO of Trinity Insight LLC, an e-commerce consulting agency in Philadelphia, boosted his company’s efficiency with free software that lets employees access their office computers from home. Before these tools, such as LogMeIn, Trinity Insight would have to deal with employee absences for doctor appointments or family illness. That meant key tasks weren’t being done in a timely matter.
Mr. Smith says, “Having employees being able to get tasks done from home allows the business to run more effectively and allows us to ensure that client needs are being met, while at the same time allowing our employees to have a work/life balance.”
Mr. Andrawes of Personalwine urges the procurement team at his Austin, Texas, company to get bids from three different vendors to ensure the best deal. And he encourages them to ask vendors for 10% off the cost of any item they’re purchasing. “Asking for discounts and fighting for lower prices will save you tens of thousands of dollars,” Mr. Andrawes says. “It never hurts to negotiate, because the vendors are asking for discounts themselves from their suppliers—everyone is doing it.”
Mr. Andrawes also suggests creating a “profit savings” pool, where the company contributes 2% of any savings on a purchase to its employees.
After using the practice with two of his employees, he says, he cut the cost of wine accessories and office supplies by some $14,000 last year.
Trade, Don’t Buy
Avidian Technologies Inc. of Redmond, Wash., has used barter networks to trade its software for goods or services, says Chief Executive James Wong.
Most of the time, the company makes trades to get perks for employees that would otherwise have cost thousands of dollars. Recently, for instance, Avidian made a deal with the Seattle Symphony: In return for Avidian’s customer-relationship-management software, the symphony provided four tickets for each of Avidian’s 35 employees. The company made a similar deal with a local restaurant, getting a Christmas party that otherwise would have cost $5,000.
Be warned, though: Bartered goods and services are taxable and counted as regular income. “The trick is to make sure that whatever good or service you receive for your item is worth more to you than the cost of the product and the related tax,” says Mr. Wong.
Jeremy Brandt, CEO of Dallas-based 1-800-CashOffer, suggests prepaying January and February expenses in December. The expenses will go on the previous year’s taxes, allowing you to take the deduction 12 months earlier. And if you pay with a credit card, the cash won’t leave your business until January.
“This is true for office rent, equipment you might need and even consultants,” says Mr. Brandt, whose company helps home sellers sell their house through a network of real-estate investors and agents. “If you know your attorney is going to bill you $5,000 in January, prepay in December to get that deduction earlier.”
The reverse is also true: If you have income coming in December, defer as much of it as possible to January, so it shows up on next year’s tax return.
Get a Check
For customer transactions over $1,000, Personalwine’s Mr. Andrawes gives a 1% incentive to his sales reps to close deals with personal checks or cashier’s checks instead of credit cards. This step saves the nearly 4% transaction fee that merchants must pay credit-card processing companies.
“We saved $8,000 in transaction fees last year and it cost me $1,000 in incentives,” he says.
Give Simpler Perks
Instead of catering a meal for employees, have monthly potluck dinners with a theme, such as Asian, Italian and Mexican. “It is great for team building and allows employees to show off their specialties,” says Mr. Wong of Avidian.
Mr. Wong also suggests providing employees the option to gain additional hours of paid time off in lieu of a raise. And, when times are really tough and a salary freeze is necessary, he says you should consider implementing profit sharing. This way, employees can still be rewarded financially for good performance, but the amount of that reward isn’t a fixed cost; it fluctuates based on the overall performance of the company.
Mr. Brandt of 1-800-CashOffer suggests paying for all possible business expenses on a credit card that gives airline and hotel rewards or cash back. “We spend up to $100,000 a month on advertising and earn 1.2 million airline or hotel points a year. As a result, we rarely pay for airline tickets or hotel stays,” he says. “If we can’t pay by credit card, then we ask for a substantial discount for paying by check, since the vendor is saving up to 4% in merchant fees.”
Test Out Potential Hires
Dan Carbone, chief technology officer and a partner of Idea Engine Inc. of Rocky River, Ohio, suggests a 60-day period where every new employee comes in as a contractor through a staffing agency, so the company can see if they’re right for the job.
“For small businesses, a one-hour interview isn’t sufficient to learn if an employee will be able to make sales and be a good fit,” he says. The trial period “has saved us thousands of dollars.”
Yes, you often pay a contractor more than you would pay a regular employee. But you aren’t stuck footing the bill for pricey benefits and potentially losing sales because the new hire just can’t handle the job.
One new employee at the Web-development firm “brought in a stack of papers about six inches thick about our company,” Mr. Carbone says. “We were very impressed with her research. She had learned everything she possibly could about our business—but in the end could never make a sale.”
Work the Networks
Mr. Smith of Trinity Insight saves on advertising by answering customer questions online. The company still does paid search marketing, advertises in print and participates in trade shows, but by “interacting at forums, we have reduced our marketing expenses by 25%,” Mr. Smith says.
The company frequently heads to forums, Yahoo Answers, Facebook and LinkedIn to find prospects who are asking about services that the company offers.
“By positioning ourselves as a resource that answers a question, with no sales push whatsoever, we are able to gain trust and credibility, which are the most important aspects to building a long-term relationship,” Mr. Smith says.