If you’re running a small or medium sized business, it can be challenging to keep yourself afloat. Once you’ve hired a few staff members and expanded a little, it can seem like your costs quickly get out of control. Many businesses struggle once they’ve reached this point, since managing your finances is so different from when you were a smaller company. Really, you only need to make a few small changes to the way you do business to adapt to the changing financial environment. If you’re looking to make your business more efficient, there are four secret tricks you can use to keep yourself competitive.
1. Keep It Variable
When you’re running a business, you have two types of expenses: fixed costs and variable costs. Successful businesses try to keep everything as variable as possible. For example, paying your salesmen on commission instead of a salary. Their wage varies with the success of your business, they only get paid when they make sales. The expenses are tied to specific incomes, rather than being a fixed dollar value you have to pay every month. This is the easiest way that you can keep your costs from getting out of control, since they’re pegged to a specific income.
2. Secure Your Financing
When you’re financing large business investments, interests can quickly get out of control. Most banks treat business credit a little different than personal credit. In fact, businesses even have their own credit rating. This means that a 3-year-old company might, on paper, have worse credit than you have yourself, even if you’ve been paying your bills on time. A secured loan can reduce your interest costs by using your company’s assets to offset the lenders risk. This is a popular tactic used by many businesses to secure financing that allows them to turn their fixed assets into liquid cash. Commonly, this type of financing can be used to extend the due date of invoices. For example, you can pay a bill on the due date with credit, allowing you to wait until you’ve got more revenue coming in before covering it out of pocket.
3. Use Performance Bonuses
Spending cash to save cash might sound backwards, but this is a highly effective way of motivating employees. Setting performance bonuses will give your staff something to work towards, motivating them to meet your corporate objectives. This can help move your company in the direction you want to go, and reward the people that help you get there.
4. Incorporate In Another State
The news is always covering companies that move their assets offshore, allowing them to live tax free. While this tactic is highly unethical, what many people don’t realize is that there is a completely legal and easy way to reduce your corporate tax burden. All you have to do is incorporate in a state that has no state tax. You’ll still be on the hook for federal tax, there is no way to get out of that. But when you don’t have to pay state tax, you’ll save yourself buckets of money.