Five Painless Ways to Trim Business Costs
Not a good week.
The economy has just lost more than 300,000 jobs, pushing the unemployment rate to record highs. The DOW is down and the NASDAQ … let’s skip the NASDAQ, shall we? As I write, we’re on the brink of a second recession, and global uncertainty is messing with our pocketbooks.
Hence, it’s smart to save money—and more than a buck or two, to borrow a line from AT&T. You have two ways to do this. The first is to make like Jampa Gyatso, a famous Buddhist ascetic who lives in a cave (to save on rent?), owns a single robe, a few books and eats once a day. His method, I assure you, will save you money, and you might find Nirvana as well. Or—and the choice is yours—you can skip the cave, trim your budget in five easy steps and save $1,000 a year.
I’m for Plan B.
Where’s It Go?
You can’t save money—correction, you can’t save money effectively—until you know where it goes. What are you spending, and where are you spending it? Most of us can’t say for sure, since our records are kept, at best, on the back of an envelope.
The solution? Spend—yes, spend—the money it takes to buy a good piece of accounting software. Peachtree, Quicken, QuickBooks and Microsoft Money are strong in this field, and they can be had for less than $100. You can find cheaper shareware on the ’Net, or you can rig your own system in Excel. Either way, start to log every nickel and dime you spend, then run a few reports to see the damage.
You’ll be surprised. Sure, the categories that chew up your wallet, like salaries, rent, hardware and such, will be there in force. But you’ll begin to see patterns in the minor categories that add up to big bucks. Consider this: If you overspend on office supplies by $50 a month, that’s $600 a year. Otherwise put, that’s a lot of Post-Its. Then you’ll see what you spend on gas and realize you could save, easily, $20 a month. Net result? You save $240 a year. Next: Your business meals run $130 a month. Not bad, you think, but you thought you were only spending a hundred. That’s $30 a month, or $360 a year, that you can trim.
Net savings? $1,200, all for buying and using a cheap piece of software.
Save on Software
Speaking of software, it can range from a few pennies (for shareware and other goodies you find on the ’Net) to more than a thousand bucks a pop for a specialty app—and that’s just for a single license. What if you need four, one for each member of your team? Or 10?
If you own your own shop, of course, you buy your own stuff. There’s no more corporate budget to ride on or nettled CFOs to annoy. To pare down your software expenses, try these simple tips:
- Download the product demo. These days, more than half of all demos are full, complete versions of software with nothing but timers to limit their use. Hence, you can do your work, save it and ship it out (to a client, a colleague, etc.) without paying a dime—providing, of course, you can do the work in the month or so that the software is active.
- Be a beta-tester. It puts you on the cutting edge and gets you a free copy of the software to boot. In addition, you’ll often get special help—read: free tech support—from the publisher. Bear in mind that you’ll have to cope with the product’s bugs and agree to give some extensive feedback, but it’s a small price to pay to save $500.
- Hold off on that upgrade. Do you really need Office XP? The answer is simple: You do if your client says you do. Otherwise, you don’t. If you need to buy an upgrade to be compatible with your clients’ platforms, do it. If not, keep your money in your wallet. Most clients use older software than we do; it’s the geeks like us who keep the software firms in business with an upgrade every two months. In a recession, you’d be surprised what you can live without.
- Use the phone. Call a software company and ask for a trial license. They might say no, but they might say yes. Times are tough and they’re eager for sales, so they’ll be willing to bend the rules if you’re thinking of buying in bulk (say, five or 10 licenses).
Recycle (and Sell)
Not your garbage. Your computers. When you outgrow a system, you can take one of three steps: First, give it away. Make a school or charity happy. It’s good for your heart, but not so good for your wallet.
Second, sell it on eBay. I’ve sold dozens of items with help from Whitman et al, and I’ve been more than pleased with the price. Remember that auctions are counter-cyclical: They go up as the economy tanks, so now’s a good time for an electronic garage sale.
Third and last, you can scrap the machine but save its parts. Over time you’ll gather your own little cache of NICs, drives (hard, floppy and otherwise), memory, keyboards, mice, fans, graphic and sound cards and so on. You can use them to boost the performance of ailing machines, or you can sell them as separate parts on eBay and Yahoo! Auctions. Sometimes, you’ll get more for a hard drive or motherboard than an entire machine.
Your Business Is Your Client
You’re an IT expert. By definition, you know how to leverage technology to save money. So treat your business as you treat your clients: Audit your own technology and see where you can save. This means a new storage solution. (Do you really need a new file server, or can you use an ASP for backup?) What about Web hosting? If you have two, three or 10 domains, get a VPS from Verio or any of the dozens of companies that sell them. (You can sell the extra capacity to your clients, adding a new revenue stream to your business model.) Switch to PC-based phones for IP telephony, integrated fax and messaging. (Then sell your fax machine, natch.) And trade in your T-1 for a DSL or two.
The point: This is where you can shine. Bring all your smarts to bear on yourself. Treat your business the same way you would a client’s, and you’ll end up with an extra deposit in your savings account.
Beat the Taxman
Legally, of course. This gets a bit tricky, but in brass tacks, you can save on payroll tax if you convert your business to an S Corp and put yourself on the payroll. I’ll explain.
When you work for someone else, say IBM, you pay 7.5 percent of your income in FICA tax, short for the Federal Insurance Contributions Act. This pays for Social Security and Medicare. IBM pays the rest, another 7.5 percent, for a total of 15 percent. When you work for yourself, you pay it all in the form of the self-employment tax, which is 15.3 percent of your income. Hence as soon as you go solo, you add 7.8 percent to your income tax.
That hurts, but there’s a way to soothe the sting. If you convert your business to a corporation and put yourself on the payroll, you pay half the tax from your salary and your company pays the rest. It’s still your money, to be sure, but a corporation’s FICA payments can be deducted as a business expense. You can take the 7.5 percent that’s paid by your company (even though you’re the owner, or even the sole employee) and use it as a tax deduction. Even better, in an S Corp (a type of small corporation that your accountant can explain to you) the monies you take in corporate distribution as an owner are not subject to FICA—only to personal income tax.
Hence it pays, from a tax vantage, to run your business as a corporation. There are other hurdles, of course—the “reasonable salary” rule and the “personal services” rule come to mind—so call your bean counter and ask him to explain the deal to you. Run the numbers. At year’s end, you could end up with a thousand bucks in your pocket, or more.
Rent is expensive. True, there’s a certain blessing to having an office: You get out of the house; you can focus on work. You look, to be frank, more like a professional. And you can have clients visit you without making the bed. But you have to pay