Year-end is always a great time to reflect on the past 12 months and think about ways to reduce business expenses and increase your profit. One of the ways to start the year off right is to do a review of your business expenses and see where you can find money leaks. These leaks are common for many business owners because they are happening “behind-the-scenes” and are not always obvious. But finding these leaks and patching them can lead to saving your business a substantial amount of money. Here are some of the more common expenses, or leaks, that should be looked at closely on a yearly, if not quarterly or monthly, basis.
Interest and Fees
Many small businesses use corporate credit cards. If you are using a corporate card, look at the interest and fees associated with those credit cards. Could you get a better interest rate by going with a different card? Are you paying large annual fees?
Take a close look at what you’re paying for your credit card and bank programs to see if you could be saving money by going with a competitor.
Here are some common expenses that could be costing you more money due to high interest and fees:
- Credit cards
- Bank fees (wire, service fees, etc.)
- Merchant services (credit card processing fees)
It’s always a good idea to contact your bank and credit card company periodically and simply ask for better rates. If they can’t offer any, then shop around for a better deal.
Recurring Credit Card and Bank Charges
It’s very common to see businesses with recurring charges on credit cards, especially as SaaS services and membership websites increase in popularity.
The problem with this is many business owners don’t know what all is hitting their credit cards each month. Employees come and go and set up recurring charges, but then leave the company and don’t cancel the service. This can cost a business thousands of dollars if it goes unnoticed for too long.
Are you still using the service? Could you downgrade your plan to a cheaper one? Is there a better option? Take a close look at all recurring charges hitting your bank and credit cards to make sure the charge is worth keeping.
Recurring Service Plans
Another way to find money leaks is by reviewing service plans and contracts in your business. Cell phone agreements, web hosting, internet service, contractors that you have on retainer, etc.
It’s worth a call to all these types of vendors to see if you are getting the best deal and exploring options to reduce your costs associated with these services.
For example, if you pay for a cell phone plan through your business, simply picking up the phone (or having your accounting team do it for you) and asking if there is a better plan that would suit your needs could wind up saving your business a good chunk of money.
Early Pay Discounts
Many vendors will offer a discount when you pay their invoice early. Not all businesses choose to take advantage of this for various reasons like cash flow, but if you are in a position to get the discount, it may be well worth your while to do so, especially on larger invoices where the discount is often 1% or 2%.
For instance, if you have a vendor invoice for $50,000 and the terms are 1/10, net 30, that means you can take a 1% discount if you pay the bill within 10 days. By paying in 10 days, you get a discount of $500. If you pay in 30 days, you pay the full amount.
If you chose to take advantage of early pay discounts, your savings could add over the year to a substantial amount.
On the flip side, if you are constantly paying bills late, you could be losing a good chunk of money to vendor late fees and penalties.
The key to avoiding late fees is cash flow management, a tight accounts payable system and good relationships with your vendors. More often than not, late fees can easily be avoided, and should be!
Start The Year Off Right
These are simple, yet effective ways to stop money leaks and increase your bottom line. Being aware of the leaks is the first step!