These are difficult times for small businesses. You and your customers are struggling with inflation, increasing energy costs and tight credit. Each additional expense should be considered carefully to be sure it will offer the return you need. Here are a few ideas to contemplate in an effort to protect your profit margins.
Have you been absorbing energy cost increases? You may have refrained from raising prices, but your bottom line may be suffering if you haven't been passing those increases along. Efficiency and conservation can help control or even reduce those spiraling utility bills.
For example, our local Wal-Mart has installed energy efficient upright freezer units. Instead of being lighted at all times (with the bulbs giving off some heat) a motion sensor turns on the lighting as customers approach down the aisle. In addition to the savings, the sudden illumination attracts customer attention to the freezer contents.
Consider contacting your utility companies to ask whether they offer energy audits. It might be time to look at the payback time for new heating and cooling units. Something as simple as cleaning filters and regular servicing can yield savings. Ask whether you qualify for an off-peak rate plan.
If you make deliveries, spending more time building efficient routes, or cutting the frequency of deliveries may decrease those fuel expenses. Adding a fuel surcharge may be more palatable to your price sensitive customers than seeing a price increase on products.
Do you reimburse employees for travel at the IRS rate? It has recently increased to $0.585 per mile. Take a look at the cost of renting a vehicle and paying for the fuel. On several recent trips of several hundred miles, the rental car method saved my employer more than 50 percent over the cost of reimbursing me for personal miles.
The most recent Consumer Price Index (CPI) figures from the Bureau of Labor Statistics (www.bls.gov) show a 5.7 percent increase from August 2007 to July 2008. If you lease your facility, take a look at the language around rent increases in your lease. Many commercial leases calculate rent increases using the CPI. If your lease contains such language, you may want to suggest that your attorney negotiate a cap over the previous year — 4 percent for example — to protect you from unexpected large increases.
If it is time to replace computers or other technology, look carefully at a lease vs. buy analysis. Technology changes so rapidly that leasing may be the more cost effective alternative.
This is by no means a comprehensive list of possible savings, but it may get you started on a more comprehensive review of expenses and ways to reduce your costs. For more strategies, please contact your local Missouri Small Business Development Center for individual free and confidential business counseling. Find a list of centers at www.missouribusiness.net/sbtdc/centers.asp.
- Kathy Macomber, MU Extension business specialist. Barton County SBTDC
This story was featured in the Sept. 2008 newsletter