Small business owners are always looking to cut expenses where they can. But in today's business climate, reducing outlays may be particularly important. In this column, Smart Answers shares several tips on how small companies can save on operating expenses.
Do an "asset audit." Many businesses aren't sure exactly what they own in fixed assets. Of course, large items like property, buildings, and manufacturing equipment are easy to keep track of, says Marcus Scholes, vice-president of Real Asset Management International, a Boston software company. But technology assets such as laptops, flat-screen monitors, printers, fax machines, and PDAs can easily get lost or forgotten.
"A company's fixed assets are often one of the biggest line items on its financials, but they are often haphazardly managed," Scholes says. Not having a handle on your assets can be costly: You may be paying taxes and insurance premiums on items your company no longer owns.
If you haven't done an inventory of your assets in a long time, set aside an afternoon or a Saturday and list everything your company owns. If you have a barcode system, or an earlier asset list you can start with, that will make your audit easier. If you don't, simply walk around with a pad of paper and make note of all your assets. Don't forget furniture, fittings, fixtures, and IT equipment.
"In our experience, up to 20% of assets on companies' book are no longer in existence," Scholes says. You can eliminate those items the next time your insurance is updated and when your taxes are due. "Shadow assets that lurk on asset registers but no longer actually exist are costing many businesses thousands or more per year in state property taxes," Scholes notes.
Having an accurate, updated asset list can aid with insurance recovery in the case of a fire or other disaster, and keep your company current on the best strategy for depreciating those assets for tax purposes.
Use e-mail over postage mail whenever possible. May 12 marked the latest in a series of U.S. Postal Service price increases (BusinessWeek.com, 7/17/07), to 42 cents for a one-ounce, first-class stamp. This is the fifth increase since 2001, during which rates have gone up nearly 24%.
Combine annual increases in mail rates with the rising cost of paper, envelopes, ink, and printing, and most small companies find that doing business through postage mail is far more costly than using e-mail, .pdf files, and Web sites, says Thomas Harpointner, chief executive of AIS Media, an interactive marketing company in Atlanta. "We're seeing fewer companies that produce four-color, glossy brochures, informational CDs, and print catalogs these days. They are more likely to rely on digital documents, secure-login Web sites, and e-mail marketing," he says. "A sales person can refer customers to the company's Web site rather than mailing out a printed brochure."
Things such as company newsletters, trade publications, and sales catalogs are all moving online as companies cut costs and respond to environmental concerns. While certain legal documents, such as contracts, may still require paper originals, many small companies can use electronic formats for most of their communications with suppliers and customers. Online marketing campaigns cost about a penny per e-mail, Harpointner says, and outsourced e-mail service providers can help gather e-mail addresses, navigate "opt-in" lists and deal with spam filters.
Return on investment is higher with e-mail marketing than it is with direct postal mail, and e-mail can be tracked, with 90% of metrics typically coming in within 48 hours of the time the campaign was launched, Harpointner says.
Manage your fuel consumption carefully. Everyone is being hit hard by the skyrocketing price of gasoline, but companies such as plumbers and florists are suffering more than most. They cannot erase fuel costs without also cutting out revenues. But they can figure out ways to reduce those costs by managing their fuel use.
Reducing drivers' speed, training them to avoid excessive idling, and plotting out the most efficient routes can all help cut consumption, says Todd Krautkremer, CEO of Gearworks, a Minneapolis company whose fuel-management software runs on cell phones and GPS devices. Other companies, such as 4Refuel, based in British Columbia, do on-site refueling to cut out labor time at the gas pump, and manage fuel use through strategies like regular maintenance.
"If drivers have to get to a particular customer but they don't take the most direct route, it accounts for 3% to 10% of their driving time. If they can get to a destination more efficiently, it will immediately cut up to 10% of the company's fuel cost," Krautkremer says. Navigation systems and informed dispatchers also help prevent drivers from getting lost and wasting gas driving around looking for a client location.
Training drivers not to speed and monitoring their compliance can also save money. "Going 55 mph vs. 60 mph saves a half-mile per gallon on fuel economy. If your company has 10 trucks traveling 100 miles a day, that's $4,500 a year in extra fuel expense you can save by just slowing them down by 5 mph," he says.
For companies that simply cannot cut costs enough to continue business profitably, raising prices may be the only option. "This crisis we face today, particularly with gas, is not something the company owner feels alone. Individuals feel it too, because they are filling up their own tanks. So your customers may be more sympathetic to your price increase than they would be in another situation," Krautkremer says.