Feeling the pain of rising operating costs? These ideas can help you counterbalance the economic climate and discover efficiency in your day-to-day business.
1. Reduce your costs
When goods, services and labour become more expensive, it’s time to take another look at what your business spends money on and determine where you may be able to cut back. Look at both your fixed and variable costs as you search for areas to trim.
Your fixed costs:
- Office space. If your in-person workforce has been reduced as a result of a remote and/or hybrid work model, consider downsizing to cut down on rent payments. Alternatively, consider sub-leasing part of your space or trying to renegotiate rent with your landlord — it’s a commercial renter’s market in many areas right now!
- Equipment. Look for ways to reduce costs by sourcing gently used vehicles, computers or trade equipment.
Your variable costs:
- Inventory. Are you being as efficient as possible with your inventory management? Watch out for waste that may be eroding profits or excess inventory that is sitting too long, taking up space.
- Supplier terms. Your suppliers may offer incentives for early payment. If you’re in a position to pay ahead of schedule, consider taking advantage of this opportunity. Bartering for products and services can also help with cash flow.
- Operating expenses. When was the last time you looked closely at your utility bill? Can you become more energy-efficient to bring it down? Do you have an internet plan that gives you the best bang for your buck? What about your cell phone plan, given that your employees may be working off-site? A quick call to providers can often result in lower monthly plans and/or greater efficiencies.
- It’s also worth taking a look at your bank statements — consider an annual review with your banker, as the way you use your account may qualify you for savings you’re not aware of.
- Supplier costs. Given rising costs of goods, materials and labour, you may wish to move away from fixed-price contracts so adjustments may be made as costs fluctuate.
- Subscriptions. Run through all the publications, tools and programs you’re subscribed to in order to figure out if there are any you can discontinue or even put on hold for a time.
- Labour. If you’re finding it hard to attract the right talent, consider outsourcing, if possible, while continuing to invest in key employees and critical contractors.
- Marketing. The best advertising is often word-of-mouth. Consider organic, low-cost marketing activities that may boost referrals, as well as targeted social media programs.
2. Assess your business credit cards and loans
Your credit card can be a very useful payment vehicle — but shouldn’t be used to store debt. By paying your credit card balance on time, you save on interest costs.
Also, try to maximize your business card’s potential. If your credit card offers rewards points, consider using it for both everyday and larger purchases (provided you pay it off before the end of the grace period). You can turn those rewards into equipment, travel, staff incentives and more. Or you can use the money you earn on purchases from a business cash back card to reinvest in your business.
If you have loans on the books, work with your account manager to see if it makes sense to renegotiate the terms to reduce repayment amounts or even pay them off sooner to be rid of the monthly expense.
3. Go digital
More than ever, technology is a business owner’s friend. If you’re using old systems or hardware, you could be losing time by doing business on slow technology. Cloud computing and eCommerce platforms can replace more labour-intensive processes — from ordering to tracking to selling.
Keep in mind that your team may be a great resource since your employees work on your systems every day. Ask them if they see opportunities to increase efficiency and save money — and then reward them for their input!
4. Utilize tax credits
Tax credits can help reduce the amount you pay on your taxable income. While they may not have an immediate effect on your bottom line, you’re sure to notice them come tax time. Unlike tax deductions, which are only worth a percentage of their total in tax savings, a tax credit is worth its full amount. If you receive a tax credit worth $250, for instance, you’ll save $250 on your return.
The Federal, Provincial and Territorial governments all offer tax credits. Here are a few examples:
Film or Video Production Services Tax Credits (PSTC): The PSTC is a refundable tax credit earned through eligible Canadian labour expenditures for a given film or video production.
Apprenticeship Job Creation Credits: The AJCTC is a non-refundable tax credit an employer can claim on their individual income tax return when hiring an apprentice.
Research and Development Tax Credits: R&D tax credits allow businesses to deduct R&D expenditures from business income, provide an investment tax credit or lower personal income tax. At the same time, be sure to keep track of tax deductions that can affect your tax bill.
Take a look at our five easy steps to help you organize your tax filing and appropriately apply deductions.
5. Tap into ‘free money’
Non-repayable government grants can give your business a financial boost, helping you expand, create jobs, launch environmental initiatives and more. There are thousands of grants available to Canadian businesses every year — but it can be a tricky landscape to navigate. Take a look at these tips for applying for government grants.
Consider other ways to leverage business freebies, such as free logo and design tools, website builders, Search Engine Optimization (SEO) tools, invoice generators and more. There are many no-cost resources available to business owners online.
It’s also worth checking for value-added partnerships with the companies you already do business with. RBC, for example, offers services beyond banking that provide access to useful products and services — often with valuable discounts — to help clients save as they run and grow a business.
If you find that running your business has become more expensive than ever, you’re not alone. Many owners are feeling the crunch of the economic and global factors that are affecting everything from supply chain to labour to the cost of borrowing. By getting creative, taking a close look at your operating costs and leveraging the support of your partners, you may find savings that offset the cost of doing business today.
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.