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Self-Employed
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Pump Up Your Piggy Bank
NASE Members Make Smart Moves To Save Money
By Jan Norman
Most micro-business owners aren’t spendthrifts. Indeed, most habitually contain their costs in good times as well as bad.
But when entrepreneurs need to find more savings, they become like Sherlock Holmes, sleuthing for every dollar they can find.
Last year, the NASE asked members to name all of the steps they take to save money. In the online survey, 58 percent said that they cut costs wherever they can, 48 percent said that they pinch pennies on every expense,
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and 36 percent said that they closely track business expenses to maximize tax deductions.
Clearly, saving money is top of mind for most NASE Members. If you’re looking for more ways to pad your bank account, try these ideas.
Start With A System
Don’t go hacking away at expenses without organizing your business financial life first, advises Jim Anderson, a member of SCORE in Orange County, California. SCORE is a nationwide organization with more than 10,000 volunteers, like Anderson, who provide free business counseling to micro-business owners.
“I have a lot of clients who plain don’t know what they’re spending and making,” Anderson says. “It’s that old story: If you don’t know where you are, how do you know where you’re going?”
When Anderson starts working with business owners, he insists that they set up a financial system, such as QuickBooks accounting software, and then learn how to read and understand the financial reports that the system can generate.
NASE Member Timothy Jones, owner of T & M Jones Services Inc., a commercial construction service company in Sugar Land, Texas, bought QuickBooks when he and wife, Michelle, incorporated the business in 2002.
“QuickBooks allows us to save money and time by using its payroll system and direct deposit,” Jones explains. “We file our own taxes and forms using QuickBooks. There’s no doubt we save lots of money doing it ourselves. It also allows us to print our own checks and pay and process our federal [tax] forms quarterly.”
Whatever accounting system you choose, it won’t help you save money unless you learn to use it effectively and productively. Many community colleges offer classes on QuickBooks and other accounting systems. Most SCORE chapters teach low-cost classes in how to make the most of QuickBooks, Anderson says.
“People get into a pattern,” Anderson explains. “Money is coming in, but they don’t track, for example, that the cost [to make] their product is higher than it used to be. They get into trouble before they realize it.”
Having a system in place will help you avoid financial trouble and save more money.
Shave Costs
One of the fastest ways to save money is to reduce expenses.
NASE Member Jones got a Worklife Rewards card with Office Depot that saves him money on office supplies.
“We receive money back for our purchases,” he says, “and we receive lots of coupons. I don’t purchase anything there without using a coupon.”
Those kinds of actions show that you don’t have to wait until times are tight to start saving money.
Be on a constant lookout for unnecessary expenses that creep into your budget. Some areas to watch:
- Shipping and delivery. Don’t pay for overnight delivery when a less expensive two- or three-day delivery will do.
- Telephone. Do you really need to pay for an extra fax line when you can use the same line for fax and your Internet connection?
- Travel. Avoid pricey non-stop flights and opt for cheaper ones that require a short layover.
- Entertainment. Treat clients to a nice lunch, but don’t go overboard by dining at the most expensive restaurant in town.
When considering what expenses to cut, look at your business through a customer’s eyes. The things that are most visible to customers should be the last places you cut spending. That means maintaining your budget for such items as marketing and customer service.
For instance, serve the best complimentary coffee you can in the customer waiting lounge. But, you might want to replace Starbucks with a store brand in the back office.
The back office is a great place to look for savings. Many small retailers who ship products save money by reusing bubble wrap and boxes that were used to ship products to them. Buying supplies in bulk can also shave your costs.
All those nickels you don’t spend can add up to big savings over time.
Make A Deal
Learning to be a savvy negotiator can save you money, too.
Micro-business owners shouldn’t automatically pay the asking price for equipment and supplies, says NASE Member Linda Ehrlich, owner of Spirogyra Diversified Environmental Services, a water quality consulting service in Burlington, N.C.
“If I buy a fair amount of something, I always ask for the best possible quote rather than the going price,” she says. “It doesn’t cost anything to ask. I’ve had to learn that. It’s not in my nature; I’m not a bargainer.”
That tactic has gotten Ehrlich discounts on microscopes and other instruments that she uses in her work.
She also uses subcontractors on some projects. By negotiating, she’s received discounts from some subcontractors to whom she gives a large quantity of work.
However, one difficulty with negotiated pricing comes for Ehrlich when she is the bidder rather than the buyer. She must anticipate future costs sometimes a year in advance. She didn’t calculate that gasoline prices would rise about 60 cents a gallon in late 2007, so she couldn’t recoup that cost from contracts she had already signed.
“Anticipating the future is a lesson I still have to learn,” she says.
Contractor Jones saves money by negotiating lower prices with his paint supplier.
“By building a good relationship with the sales representatives, they will cut prices and refer business to us based on that relationship,” he says.
Also, when buying large quantities of construction materials for a job, Jones gets several bids, which saves money even though the process can take weeks to complete.
Competitive bidding “is a must to save more money for our business,” he says.
Avoid Spending
Often, the best way to save money is to not spend it in the first place, says NASE Member Conrad Kiffin, a commercial photographer in New York City.
“I’m content to struggle and buy equipment outright rather than take on debt, which costs more in the long run,” he says. “I’ve had competitors weighed down by a lot of loans for buying equipment. One by one, they have chosen other occupations or gone out of business. I’ve lasted 16 years because I operate lean and mean.”
One way he saves money is by leasing a small studio. He couldn’t afford a large one in the high-priced New York City real estate market, he says. His small studio is adequate for most of his product photography work. But, several jobs each year require a larger studio. For those, he finds another space. It’s a smart move because he’s not paying annual rent on a large space that would go unused most of the year.
Kiffin also has no employees. He uses freelancers on specific projects, if needed. That saves him money because he doesn’t have to pay salaries during slow times.
Contractor Jones also looks for ways to avoid spending. He chose a bank that provides free checking accounts and gives free checks for life. Because he has a good relationship with the bank, he can use its conference room for client meetings for free.
He also looks for free business workshops, seminars and networking forums.
“The city of Houston Affirmative Action Small Business Program is wonderful,” he says. “Most classes are free, and the subjects are useful to your company. I’ve received legal, management and financial [training] and certifications for free that have helped make my business successful.”
Many city and state programs offer similar free and low-cost business training opportunities. Through the U.S. Small Business Administration, Small Business Development Centers nationwide provide training for business owners, usually for free or at a low cost.
NASE Members can get tax training through seminars offered across the country during March and April. A certified public accountant will help you learn about tax deductions and answer your questions. The cost is only $20 for the two-hour seminar, a $100 savings for members. To get more information and to register, visit www.NASE.org. Enter Quick Link “Tax Seminar.”
SCORE counselor Anderson says he sometimes puts his clients on a budget to prevent them from overspending. Once they’re in the budgeting habit, they know they can’t spend more than a certain amount each month, so they make less expensive choices or delay the expenditure.
Tap Technology
Technology and the Internet have brought tremendous savings to micro-business owners, even revolutionizing the way their industries work.
Photographer Kiffin has moved exclusively to digital photography, for example.
“I used to spend a truckload of money on film and processing. But the level of digital quality is so high that I haven’t shot film in three or four years.”
He has also stopped creating expensive printed portfolios to mail to prospective clients.
“Now if someone wants to see samples of my work, I tell them to go to my Web site. My fees for portfolios and postage are almost nonexistent now,” he says.
Contractor Jones also uses the Internet to save money.
“The Internet is one of our main sources for downloading bid documents and submitting bids, instead of mail or in-person delivery, which saves postage and fuel for travel,” he says.
Environmental consultant Ehrlich agrees. A few clients still prefer printed and mailed invoices, but all the others receive electronic invoices and electronic reports of her findings.
“Rather than print out a report, put it in an expensive cover and pay for snail mail, I do electronic reporting as much as possible,” she says. “I don’t buy cut-rate printer cartridges because of the quality. And I don’t buy cheap stationary. So electronic reporting is a real money saver.”
With technology, the ways to save grow every year. Keep your eyes open and learn to use the latest technology to your money-saving advantage.
Target Taxes
While some spending reductions might be difficult to make, almost every micro-business owner loves to cut taxes. And there are numerous ways to save on your tax bill.
Jones set up his company as an S corporation so that profits flow through as income and are taxed at a lower rate than C corporation profits would be. He also has his office in his home, so he can deduct a portion of mortgage, maintenance expenses and property taxes as business expenses.
Business owners can cut taxes several ways, says Judee Slack, owner of SlackTax Inc., a tax and payroll service in Fountain Valley, Calif. Among her suggestions:
- Purchase equipment up to $125,000 and deduct it in one year (larger purchases must be depreciated over several years)
- As you get toward the end of the year, either accelerate or delay some income, depending on which will help lower tax your tax bill
- Set up a retirement plan to defer taxes on contributions
- Buy a hybrid vehicle for your business and get a tax credit
- Donate used equipment to a qualified charity and get a tax deduction
NASE Member Ehrlich says, “I try everything I know to save on taxes. The NASE is very helpful about putting out all the angles and strategies, and I try to keep up with those.”
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