It’s easy for costs to mount in business. Often these seem manageable in isolation, but gradually account for a noticeable amount that eats into the bottom line. As a sole trader, you feel every cost and decision directly. Business owners do (and should) consider their personal financial goals alongside their business goals. Smarter cost management in your business could mean you get to that holiday or renovation sooner that you might otherwise have.
In this article we take the microscope to a number of costs that sole traders can sometimes overcommit to without realising. By eliminating or reducing these, the business can quickly start to look a lot healthier.
Larger than needed premises
If you plan on staying a solo operation for the foreseeable future, consider what you really require from business premises. Your workspace will vary greatly depending on the type of business you operate; an automotive business likely needs a workshop whereas a freelance designer could arguably get by from the kitchen table. Perhaps the biggest overhead for a business is the lease of commercial space - especially if located in a central, desirable location.
Think carefully about your business requirements. Do you need a large space or will something more compact meet your needs? Does the business have to be located in an expensive street or could you run the same business from a cheaper location? And if you’re a digital-based business, is the model in fact working from a home office space and meeting people at their location or somewhere neutral.
Some business owners make use of shared work spaces that can hire out meeting rooms and other facilities to provide a professional environment for business owners to meet their clients.
These are just some of the options to reduce your costs around premises. Jumping into a big expensive space just soaks up profit you could otherwise be making. And it’s not just the rent you’ll pay but all the ongoing costs, too.
Much like our personal lives, subscriptions are sometimes missed by sole traders as they’re seemingly minor costs. The problem is that over the course of years, subscriptions can build up, combining as a significant monthly cost to the business.
- Customer Relationship Management (CRM) systems
- Cloud storage services
- Professional association memberships
- Online directories
- Email marketing platforms
- Magazines and other industry publications
- Marketing tools
- Project management tools
- Communication tools
Depending on the needs of your business and how much you use these, it might be worth doing an audit of your recurring subscriptions. Make the call - do I use this frequently each month? Does this subscription materially help my business? If you can’t justify these costs, then make the call to either move to a cheaper option or remove it entirely.
Stock that doesn’t move
Does your business sell products or do work that demands frequent supplies? Holding stock for long periods of time can really drag your business’ cash flow down, with capital tied up in inventory that isn’t being realised as sales. Furthermore, storage of stock equates to a cost, too. When inventory sits dormant for too long, it also runs the risk of becoming outdated or even degraded by environmental factors.
As a sole trader, you should ensure you spend the time to optimise your supplier relationships and reduce shipping time and costs. There’s a case for ordering larger amounts, but only if you’ve got confidence the demand for this exists. As your business grows, you’ll find it easier to make bigger bulk orders and not risk sitting on stock.
Pricey bank fees
This one doesn’t take long to find out. Simply go into your business’ internet banking, navigate to the statement and check for fees around accounts and cards. Many old business bank accounts will be running on legacy fee structures and might not reflect your current needs. Make sure you speak with your bank and discuss whether you’re getting the best possible deal. Also do a shop around and check each provider’s account and card fees - this will help negotiate a better deal with your current bank, who will want to keep you as a customer.
Excessively wide service areas that create big travel costs
If you’re a service-area based business such as a tradie, you’ll want to think about how far you want to be travelling for work. It can be tempting to take jobs far afield, but the cost of fuel and travel time can mount up. These costs can be passed onto clients to a certain extent, but there’s another cost-related implication of covering too much distance in your work week; the inability to visit multiple locations within a work day.
You will also find that over the long haul your vehicle maintenance can be more costly. There are always opportunities that warrant going the extra kilometres, but keeping your typical service area all within a reasonable proximity to your home and suppliers might be worth considering.
Network and group membership that generates no business
We’re big advocates for networking and group interaction with those within your industry. It can be a helpful way to stay up to date with new trends, ideas and ways of working. These networks may also be excellent referral channels for business. But this isn’t a given - and not all professional networks or groups are equally effective.
It’s a good idea to continually reflect on your engagement with those voluntary membership groups and what sort of benefit you have gained over the long term. If this is purely to share and connect with others that could be valuable enough. But if you’re spending membership fees and see no tangible benefits, it might be time to exit these and use the money elsewhere. There are some great online communities and meet ups across New Zealand that don’t cost and may get you what you need.
A financed vehicle with large payments
A car or truck is simply required for many jobs. In New Zealand we have many options and price points for vehicles - with affordable options enabled by an active second hand market. New vehicles are also available at compelling prices. Unfortunately part of the perception that some business owners have is that a vehicle is an extension of their business - and to market themselves as high quality, they need the vehicle to match.
This thinking isn’t completely without merit, but it should be something that only well-established businesses with strong financial positions should be thinking about. If you’re still in the growth stage, try to choose a vehicle that’s not going to put strain on the finances - even buying outright if possible. Furthermore, do your research around reliability and maintenance costs so you can choose the best option that won’t continually demand more of your hard-earned money.
There’s nothing wrong with a nice company vehicle - it just has to be purchased when the time and budget is right!
Get help streamlining your businessThese are just some of the costs that should be assessed as a self employed business owner. Are you looking to get control over your business’ outgoings? At RightWay we offer business advice, bookkeeping and payroll and of course accounting services to our clients. You don’t have to hire for these functions internally - simply chat to us about your needs and we can help build a plan that works for you. It might free up time for you to focus on growing your business and doing the work you love.
Disclaimer: The information provided in this article is intended for general informational purposes only and may not apply to the specific details of your business. For personalised and tailored advice, we recommend reaching out to our professional team. While we strive to provide accurate and up-to-date content on our website, RightWay assumes no responsibility for any business loss or damage that may arise from relying on the information provided.