It’s not cheap to run a firm; expenses pile up fast, so reducing overhead is a must. The most obvious way to reduce your overhead is to perform an assessment of your expenses and eliminate anything that isn’t necessary. From there, you can eliminate waste and find better, more affordable alternatives wherever possible.
Here are four simple ways to zero in on unnecessary expenses and cut your firm's operating costs:
1. Stop brushing off small business expenses
Reduce your overhead indirectly by tracking your tax-deductible expenses meticulously. Don’t let anything slide. If you’re used to ignoring small expenses and you’ve been growing your business, you probably have a good amount of deductible expenses by now.
If you’re still shrugging off small expenses because the deduction doesn’t seem worth the time to document, stop. As a company grows, expenses increase, tax rules change, and you could be missing out on some hefty deductions.
For example, say you didn’t need to buy business liability insurance when you first started out. You formed an LLC to protect your personal assets, but haven’t needed to buy any type of business insurance until recently. The habit of letting a few hundred dollars in expenses slip by will eventually turn into thousands of dollars if you don’t start tracking everything, starting with your insurance premiums.
Business insurance premiums are tax-deductible when they’re part of your cost of conducting business. Generally, the premiums you can deduct include:
• Insurance that covers damage from fire, storm, theft, accident, and other losses
• Credit insurance covering bad debt losses
• Employee medical insurance
• Long-term care insurance
• Liability insurance
• Malpractice insurance
• Workers’ compensation insurance
• Unemployment insurance
• Overhead insurance
• Car insurance for work vehicles
• Life insurance for your employees (as long as you aren’t named a beneficiary)
• Business interruption insurance
There are some insurance premiums you can’t deduct, like loss of earnings and insurance to secure a loan. Also, some deductions are subject to capitalization rules. To learn the details about what types of insurance premiums are deductible, and what the restrictions are, refer to IRS Publication 535.
Your personal medical expenses might also be deductible, so don’t forget to document those and check in with the new tax laws.
By tracking your expenses meticulously, you could save yourself thousands of dollars in taxable income.
2. Move to the remote employee model
Like outsourcing, moving to a remote employee model will drastically reduce your overhead costs. It’s ideal because it also reduces expenses for the remote employee by up to $5,000 per year, according to Inc.com.
The first thing to do is downsize or eliminate your office space. Unless meeting with clients in person throughout the day is part of your business model, you don’t actually need a big office. You can meet with clients occasionally at their office, in your home or at a café.
If you don’t need a physical presence, it doesn’t make sense to carry the weight of rent, utilities, property insurance, office supplies and equipment rentals, maintenance, and repairs. Those are hefty expenses that can be completely eliminated by moving to a remote employee model.
You can still screen and interview potential remote employees in person, but when everyone works remotely, you’ll save thousands of dollars.
Moving to a remote worker model also gives you access to more talent. For example, if you require everyone to work in your office, you’re limited to local talent. By hiring a remote workforce, you can bring on anyone from anywhere in the world.
You’ll still need to pay remote employees basic minimum wage and treat them as employees (that means offering benefits and paying their share of Social Security and Medicare taxes). Don’t make the mistake of misclassifying independent contractors as employees.
Depending on the tasks you need done, you may want to hire a mix of both remote employees and independent contractors. Hire remote employees to perform daily job duties, and independent contractors to help you manage the administrative side of your business.
In today’s workforce, many people are happier being remote workers because it gives them the autonomy they need to do a better job. Remote workers are just as talented as traditional staff, and there isn’t any evidence that they waste more time or clock hours they don’t work. On the contrary, many businesses are finding out that remote workers do a better job because of the freedom they have to work on their terms.
3. Eliminate unnecessary staff positions
Some firms are understaffed, while others are overstaffed. Both situations are going to be an expensive problem for your business. Understaffed firms struggle to provide outstanding service because employees have heavy workloads. This makes it hard to create and maintain solid client relationships. Having too many staff members is a waste of money, and will cost you more than extra payroll.
Once you’ve paid for job board fees, background checks, recruiter fees, and training, you still haven’t begun to incur the true expense of an employee.
Each employee needs equipment like a computer, a chair, a desk, and a phone at their desk. Then, you’ve got to pay for their salary, health insurance, 50% of each employee’s Social Security and Medicare, taxes, and other job-related expenses or promised bonuses. It’s not cheap to hire anyone. In fact, multiple studies show that hiring an employee can cost anywhere between $4,000-$7,645 excluding recruiters’ services.
It’s tempting to hire a full-time team to feel like your firm is already a success, but unless you’ve got the income, it’s not a good idea.
If you’ve hired a full-time team, but your income doesn’t yet justify their paychecks, you’ve got to let some people go. Only keep staff members who are vital to run your daily operations. It might take months or years to reach a point where you can hire a full-time team and that’s okay. Don’t commit to more expenses than necessary until that time comes.
Unless necessary for production or administrative work, don’t tie up your cash flow in positions that don’t directly increase your bottom line. Hire the bare minimum and increase staff as you grow.
4. Outsource everything you can to free up your staff
Outsourcing is an efficient way to get things done and keep clients happy without having to overburden a small staff. You might already be outsourcing your social media marketing or Facebook ads. Have you thought about outsourcing your tax preparation services, too?
Even when tax preparation is your primary service, it’s beneficial to outsource when you send the job to licensed professionals you can trust.
When you’re working with a small team, it’s challenging for a small staff to keep up during busy tax season. Tax preparation outsourcing with Taxfyle will help you use limited in-house resources more efficiently during those busy times.
Outsourcing your tax preparation with Taxfyle means you won’t need to hire a full-time staff when tax season rolls around. Our licensed, US-based experts are available to help you with ten or even one thousand tax returns, all year round.
By outsourcing tax preparation, you won’t have to worry about replacing employees when someone quits on a whim. You won’t need to scramble to find a new team member just to keep clients happy with your services. With Taxfyle, tax professionals are always available to you.
Ready to try tax preparation outsourcing?
Most businesses outsource to cut costs and create time for managing their business environment. In 2015, the global market value of outsourcing reached $88.9 billion.
Sign up now to request a demo and see first-hand how Taxfyle can work for you.