Engineering Business – 5 More Keys to Keeping Your Expenses Low
Welcome back! So far we have discussed five possible ways to reduce expenses. I guess by now we have got you thinking about some different ways to reduce your company’s expenses. There is many more cost saving strategies that you can implement. Do you have the best insurance for the lowest price? Are you taking all of the possible deductions on your taxes? Are you having questions as whether to buy new or used, or just rent equipment? There is multiple cost saving strategies that can be implemented without having to cut staff.
In Part 1, we discussed the following strategies:
Key 1: Recording Your Expenses
Key 2: Using the Internet over the Postal Service
Key 3: Making use of Telecommuting
Key 4: Negotiate better Lease Terms and Rates
In Part 2 we discussed another key financial strategy:
Key 5: Office Location
Now, we will discuss 5 more strategies to decrease expenses and increase profits without cutting staff.
Key 6: Buying other Businesses Assets – Why buy new equipment and furniture when there are plenty of businesses closing their doors no matter the economic conditions. There are always good deals at other businesses liquidation sales. They are usually in a hurry to unload their assets, and are willing to accept any reasonable offer. Other sources to check are auctions, resellers, and liquidators. You may find some office equipment and furniture in second-hand stores or refurbished Office Furniture stores. If you know of small business owners who closed their business, they probably have a garage or public storage unit full of boxes, equipment, and furniture from their offices. Let them know that when they are ready you maybe interested in some of the items.
Key 7: Control Office Expenses – Try to keep the office supplies expenses as low as possible. Since office supplies are loose items staff may unknowingly abuse the supply. Take the case of pens. Pens are often left behind in the field, and then replaced once back at the office. If your average employees losses two pens per week that may be $2 a week or $104 a year. If you have 10 people employed by the business, your firm is losing $1,040 per year of loss profits. Some of the key areas to observe are listed below:
Cell Phone Usage – Only the staff members who spend time away from the office should have a company cell phone. Each staff member cell phone usage log should be reviewed. If the phone is being used for other than company matters, the additional minutes should be questioned. Were there is excess personal time on the cell phone; the company should bill the staff member. Another item to look at with cell phone usage is to reduce long distance charges by purchasing phone cards.
Photocopiers and Plotters – If you are not careful, it is pretty easy to print a lot of paper on these machines. Especially, when you are printing draft copies. Drafts should be held to a minimum. In most cases drafts can be reviewed on the computer screen even large sheets like 24″x36″, unless you have a really small screen, and in that case the office should invest in buying new monitors. Eating up a roll of plotter paper can be expensive when you include the cost of the roll and the plotter ink.
Keeping Track of Equipment and Supplies – As we mentioned above, even the smallest thing like losing pens can cost the company a lot of money. Keeping track of where the supplies are going, you may find out who unknowingly or willfully is being wasteful.
Key 8: Marketing Budget – In most cases the Marketing Budget should never be reduced. In fact, during a slowing economy the marketing efforts should be significantly increased. But with that said every effort should be made to question every marketing campaign. Is the money being spent, actually getting results? The good news is that most engineering marketing does not cost very much. If you find that your firm is spending thousands of dollars on advertisements in the yellow pages, and none of your clients even noticed the advertisement, then it might be wise to reallocate your marketing budget to venues that actually gets results.
Key 9: Review Your Insurance Policies – How much is your company spending on insurance? There are several types of insurances; business, errors and omission, health, property, and so on. If you haven’t compared insurance rates in several years, it’s probably time to shop around. While you are doing this, re-evaluate your coverage. You quickly lower your insurance rates by increasing the deductible. If your deductibles $500, increase to at least $1,000 (then put this amount in an interest-bearing bank account until needed, so it’s earning money for you rather than the insurance company). If you have several different policies, ask insurance companies to quote a single umbrella policy. Most insurance companies offer a discount for providing your firm with multiple types of insurance.
Key 10: Business Taxes – Every business has to pay taxes and fees. Waiting until tax filing day may be a little late to control how much those will be. There are two types of taxes; payroll taxes and business profit taxes. To avoid penalty fees the tax forms must be filled out correctly and they must be filed on time. The government will fine for filing late. You make a mistake on the forms it will lead to an over-payment or an under-payment. Either case cost your company money. To avoid paying taxes late and paying penalties you will need to (1) know when the tax forms and fees are due, (2) have the instructions available for filling out each tax form and report, and (3) probably trained staff or accountant to fill out the forms and reports.
Your accountant should be able to explain (1) what qualifies as a business expense, (2) what form or line the business expense will need to be accounted for on, and (3) how to keep track of your business expenses. The Internal Revenue Service (IRS) has a publication that explains the qualified business expenses: Publication 535 – Business Expenses. Publication 535 goes over: deducting business expenses, employees’ pay, retirement plans, rent expenses, interest, taxes, insurance, costs that you can deduct or capitalize, amortization, depletion, business bad debts, electric and clean-fuel vehicle deductions, miscellaneous business expenses, and where to get assistance.
You will also need to keep track of your expenses. Your firm should have a filing system for all of the business receipts and invoices for supplies; a separate folder for employment tax expenses including a photocopy of the reports, forms, checks, and payment coupons that you submitted to the IRS and state department of income tax; receipts for use of petty cash; and signed employee expense forms that detail what expenses your firm reimbursed its employees for. Try to keep your receipts organized so if your firm is audited, you will be able to quickly retrieve the receipts that are needed to prove that the deductions were valid.
Most engineers have excellent technical skills, but not necessarily the same level of expertise in business management. It is the responsibility of the engineer to develop these management skills through continuing education. This continuing education can be obtained through Community Colleges, Universities, Professional Training Programs, Professional Organizations, and online training courses. In most states these continuing education courses qualify for continuing education units (CEU) or Professional Development Hours (PDH).
In Parts 1, 2, and 3, we discussed 10 key strategies to decrease expenses and increase profits. Managers are often called upon to make difficult decisions that may impact the size of the support staff, having a list of other strategies that do not require cutting staff maybe the difference between a good and a bad manager.