Between inflation, wage increases and rising interest rates, it costs more to run a business for most owners these days. To offset this trend, businesses have to either increase revenue or decrease expenses. Here are five ways to find hidden savings and maintain profit margins in today’s environment.
By Diane Amato
Feeling the pain of rising operating costs? These ideas can help you counterbalance the economic climate and discover efficiency in your day-to-day business.
1.Reduce Your Costs
When goods, services and labour have become more expensive, it’s time to take a hard look at what your business is spending money on and determine where you can cut back. Look at both your fixed and variable costs as you search for areas to trim.
A Look at Variable Costs:
- Inventory. Are you being as efficient as possible with your inventory management? Watch out for waste that may be eroding profits or excess inventory that is sitting too long, taking up space.
- Supplier terms. Your suppliers may offer incentives for early payment. If you’re in a position to pay ahead of schedule, consider taking advantage of this opportunity. Bartering for products and services can also help with cash flow.
- Operating expenses. When was the last time you really looked at your utility bill? Can you become more energy efficient to bring it down? Do you have an internet plan that gives you the best bang for your buck? What about your cell phone plan, given your employees may be working off site? A quick call to providers can often result in lower monthly plans and/or greater efficiencies.
It’s also worth taking a look at your bank statements – consider an annual review (or earlier touch point) with your banker, as the way you use your account may qualify you for savings you’re not aware of.
- Supplier costs. Given rising costs of goods, materials and labour, you may wish to move away from fixed-price contracts, so adjustments can be made as costs fluctuate.
- Subscriptions. Run through all the publications, tools and programs you’re subscribed to and figure out which ones you’re making good use of. See if there are any you can discontinue or even suspend for a time.
- Labour. If you’re finding it hard to attract the right talent, try to avoid paying a premium in this inflated labour market. Consider outsourcing when possible while investing in key employees and critical contractors.
- Marketing. The best advertising is often word-of-mouth. Consider organic, low-cost marketing activities that can boost referrals, as well as targeted social media programs.
A Look at Fixed Costs:
- Office space. If your in-person workforce has been reduced as a result of a remote and/or hybrid work model, consider downsizing to cut down on rent payments. Alternatively, consider sub-leasing part of your space or try renegotiating rent with your landlord – it’s a commercial renter’s market in many areas right now!
- Equipment. Look for ways to reduce costs by sourcing gently used vehicles, computers or trade equipment.
2. Assess Your Credit Cards and Loans
Your credit card can be a very useful payment vehicle – but should not be used to store debt. By paying your credit cards on time, you can save on interest costs.
Also, try to maximize your card’s potential. If it offers rewards points, consider using it for both everyday and larger purchases (providing you pay it off before the end of the grace period). You can turn those rewards into equipment, travel, staff incentives and more. The same applies if you have a cash back card.
If you have loans on the books, work with your account manager to see if it makes sense to renegotiate the terms to reduce repayment amounts or even pay them off sooner to be rid of this monthly expense.
3. Go Digital
More than ever, technology is a business owner’s friend. If you’re using old systems or hardware, you could be spending time you don’t have to do business on slow technology. Cloud computing and eCommerce platforms can replace labour intensive processes – from ordering to tracking to selling.
Keep in mind, your team is a great resource as your employees work on your systems every day. Ask them if they see opportunities to increase efficiency and save money – and reward them for their input!
4. Utilize Tax Credits
Tax credits can reduce the amount of tax you pay on your taxable income. While they may not have an immediate effect on your bottom line, you’re sure to notice them come tax time. Unlike tax deductions, which are only worth a percentage of their total worth in tax savings, a credit is worth the full amount of its value. If you receive a credit worth $250, for instance, you will save $250 on your return.
The Federal, Provincial and Territorial governments all offer tax credits. Here are a few examples:
Film or Video Production Services Tax Credit (PSTC): The PSTC is a refundable tax credit earned through eligible Canadian labour expenditures for a given film or video production.
Apprenticeship Job Creation Credit: The AJCTC is a non-refundable credit employers can claim on their individual income tax return when hiring an apprentice.
Research and Development Tax Credits: R&D tax credits allow businesses to deduct R&D expenditures from business income, provide an investment tax credit or lower personal income tax.
At the same time, be sure to keep track of tax deductions that can affect your tax bill. Take a look at our five easy steps to help you organize your tax filing and appropriately apply deductions.
5. Tap Into Free Money
Non-repayable government grants can give your business a financial boost to help you expand, create jobs, launch environmental initiatives and more. There are thousands of grants available in Canada every year – but it can be a tricky landscape to navigate. Take a look at these tips for applying to government funding.
Consider other ways to leverage business freebies, such as free logo and design tools, website builders, Search Engine Optimization (SEO) tools, invoice generators and more. There are many no-cost resources available to business owners online.
It’s also worth checking for value-added partnerships with the companies you do business with. RBC, for example, offers services beyond banking that provide access to useful products and services – often with valuable discounts – to help clients save as they run and grow a business.
If you’re finding that running your business has become more expensive than ever, you’re not alone. Many owners are feeling the crunch of the economic and global factors that are affecting everything from supply chain to labour to the cost of borrowing. By getting creative, taking a close look at your operating costs and leveraging the support of your partners, you can find savings that can more than offset the cost of doing business today.
This article was originally published on RBC’s Discover & Learn blog.