In order to do business successfully, it is necessary to examine how money is being spent. Keep an eye on your cash, and stay flexible in purchasing decisions. Use these principles to continually re-evaluate your business.
If you're like most small business owners, no job within the day-to-day operations is beneath you. Whether it's creating a budget or selecting a table lamp for the lobby, you often find yourself involved at every level. After all, this is your baby. And you want your baby to grow up healthy and strong.
However, it's important to step back once in a while and assess your "child" with an objective eye — particularly when it comes to how you're spending money.
"You should always be re-evaluating your business — and if you're not doing better, you're probably doing worse," says Karen Kerrigan, president and CEO of the Small Business and Entrepreneurship Council. "Every time you consider taking on an expense, it needs to be evaluated: Does it add value to the business? If I hire this person, will my sales increase? If I buy this piece of equipment, will it increase production?"
Kerrigan recommends asking employees for their input as well.
"Some of the best ideas on where to shave costs come from the employees," she says.
A surefire way to deter wasteful spending is to maintain a current cash flow statement and projection, says Jack McSunas of SCORE® "Counselors to America's Small Business," in Orange County, Calif.
"That doesn't prevent poor choices in how your money is spent, but at least you are planning for the expenditure," he says.
McSunas says that startups, in particular, get caught in the trap of thinking they need to buy all their equipment and supplies at once and that everything needs to be new. When money is tight, he recommends that business owners consider:
Kerrigan says the key is staying flexible in your purchasing decisions.
"Long-term deals can lock you into something that could come back to haunt you," she says. "For instance, technology can change so rapidly and leave you with an expensive upgrade right around the corner. In these cases, leasing may be a better option than outright ownership."
Bartering is another great cost-saving measure. In a barter agreement, no money exchanges hands; it's simply an exchange of products or services between two parties. For instance, a graphic designer produces a brochure for an accountant who, in turn, offers a few hours of bookkeeping. Bartering not only can keep expenses down, it can move excess inventory.
If the bartered items have significant value or if the business relationship is new, then an official written agreement is a good idea, according to Darrell Zahorsky, small business information guide for About.com and the CEO of Profit Innovators.
"In those instances, it's best to put it in writing so both parties are clear about what is being exchanged and what the dollar value is of those products or services," says Zahorsky.
According to the IRS, income from bartering is taxable in the year in which the goods or services were received. In most cases, you report this income on Form 1090, Schedule C, Profit or Loss from Business.
Kerrigan says executives should never wait for slumps in sales to implement cost-cutting measures.
"You should always be looking at ways to stay lean and efficient; it should be a part your organization's culture, whether you're a manufacturing plant with 90 employees or a restaurant with a staff of 10," Kerrigan says. "In this increasingly competitive global marketplace, you simply can't take anything for granted."
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