Your business may be doing well in sales, but are your expenses eating into your profits? If so, it may be time to take a closer look at how much money is going out as opposed to coming in. While expenses are part of doing business, there’s no need to spend any more than necessary.
It’s important to understand your expenses and determine what’s necessary and what isn’t. You will also want to forecast your expenses to the best of your ability so that you can anticipate what your ongoing costs will be. This will be imperative to maintaining your bottom line. And when you take on certain expenses, make sure they’re valuable to your business.
The following are some of the more common expenses that a business must cover, and some tips to help keep them to a minimum to help boost profits.
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Rent
Unless you run a business that’s entirely virtual and operate it out of your home, you’re going to need a dedicated space for your business. And that means you’ll be paying rent. This is easily one of the most expensive expenses that a business has on the books, and understandably so. Depending on the physical location of your business and the size of the space, your rent could be exorbitant.
That said, there are some ways to help keep your rent to a minimum:
- Choose a less densely populated location if foot traffic is not important for your business
- Choose a space that’s smaller in square footage if possible
- Consider subleasing if you don’t need a lot of space. Many times, subleased space is cheaper than a standard lease
- Sublease your own space to a subtenant if you have extra space that you are not using to bring in a little extra cash
- Consider buying commercial property to run your business out of rather than paying rent. This will afford you the opportunity to build equity and own an asset that will appreciate in value over time.
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Equipment
Most businesses require some form of equipment to operate, even if it’s just a computer and telephone. That means you’ll need to front at least a few hundred or even thousands of dollars when you’re starting out, or even as part of keeping your equipment up-to-date throughout the course of your business.
But, there are some ways to help keep equipment expenses down:
- Avoid the temptation to buy equipment that’s not absolutely necessary for your business to operate
- Consider buying second-hand equipment. Just make sure you understand the life expectancy and performance of the used equipment beforehand
- Resell equipment you no longer need
- Finance your equipment rather than leasing it so that you will eventually own it
- Consider an equipment financing program that uses the equipment as collateral for the loan to help keep interest rates down
- Buy multi-functional equipment that does more than one thing rather than buying several devices
Marketing
Marketing is a crucial part of just about every business. If nobody knows about you, it will be next to impossible to find paying clients. Generating leads is the lifeblood of most businesses, and the way to attract more leads is to adopt a sound marketing campaign. As such, you will need to spend a good chunk of money on advertising.
Need additional funds for your marketing expenses? Check out these business financing options.
Having said that, not all marketing is created equal, and what may work for one business may not necessarily work for another. To save money on marketing, consider all advertising channels out there and choose a tactic that you predict will bring you the highest return on investment. This may take a little trial and error, but it may be worth experimenting with when you finally find the outlet that will work best for your business on the smallest budget.
Otherwise, consider hiring a professional marketing agency to handle the marketing for you. They’re experienced professionals and will be more likely to understand which platform may work best for your business and bring you the biggest bang for your buck.
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Supplies
Odds are, you’ll have some sort of office supplies as part of operating your business. It could be something as simple as paper, pencils, and pens. And of course, you’ll also need electricity and heat to make your place of business a comfortable one. But these expenses can really add up month after month. The good news is that there are things you can do to reduce these costs, and much of that involves going “green”:
- Cut back on the amount of paper that you use
- Install and use more energy-efficient equipment
- Use a smaller space that uses less energy
- Shut off all plugged-in equipment every night or when not in use
As far as supplies are concerned, you may want to invest in cheaper, no-name, lower-quality items that are expendable and not crucial to your business.
Tax Deductions
As a business owner, there are certain expenses that may be tax-deductible. This can help put more money in your pocket at the end of the day, so you’d be well-advised to get familiar with what these deductions are so you can claim them when you file your business taxes.
- Home office expenses – If you operate your business out of your home, you can write off a number of expenses, including mortgage interest, utilities, property taxes, maintenance and repairs, and property insurance. Keep in mind that you will only be able to write off a certain amount based on the percentage of your home’s space that is occupied by your home office.
- Vehicle expenses – You can deduct vehicle expenses as a business owner, most of which are determined as a percentage of the amount of mileage you put on over the year as it relates to conducting business. These expenses can include fuel, insurance, lease payments (if applicable), capital cost (if you own), a certain amount of depreciation (if you own), repairs, maintenance, registration fees, and parking fees.
- Rent – If you rent your commercial space, that rent may be tax-deductible.
- Capital assets – Any major assets associated with your business that depreciate in value can be tax-deductible. These may include vehicles, furniture, computers and software, and any other fixtures of value. However, these assets can only be written off over a period of time according to the Canada Revenue Agency’s (CRA) depreciation rates.
- Marketing – You may be able to write off either all or some of your marketing fees, depending on the platform your business uses.
- Meals – Half of what you spend on meals and entertainment can be tax-deductible. In some cases, 100% of the cost of meals or entertainment can be deducted, such as for staff events or meals and entertainment provided for a charity fundraiser.
- Insurance – Many types of insurance may be tax-deductible, including liability insurance, property insurance, and business interruption insurance.
- Accounting fees – Any fees that your account charges for managing your business’s finances could be tax-deductible. The good news is your account likely files your business taxes so they will be able to advise you on this.
- Legal fees – Again, if you’ve had to deal with any legal issues or needed to hire a lawyer for a contract or partnership deal, some of the costs could be deductible.
Business taxes can be difficult to wrap your head around, so you will certainly want to enlist the help of a tax professional to help walk you through all these deductions that may be available to you.
Final Thoughts
It takes money to make money in most cases, and as a business owner, you’re well aware of all the expenses that can eat into your profits. That said, there are savvy ways to help curb the cost of doing business to help pad your bottom line.
