The two variables that will determine the success and profitability of your business are revenue and expenses. Gaining control over these two variables will enable your business to be profitable. Sounds simple, right? It’s not that straightforward unfortunately. Many owners don’t understand what their expenses are and how they work and it’s this lack of understanding that results in them paying for things that they don’t need. If you have a long list of expenses and you’re wondering if they’re really that valuable to you, the following list may help you. Here are 5 major business expenses that you absolutely need.
Wages and Benefits
Your business cannot function without a team of trained employees. If you’re running a startup, your first priority should be to get a team together and decide what responsibilities each person is going to have. To reduce your costs, it’s best to only hire the people that you really need to keep your business functioning. Hiring freelancers and contractors will also help to keep your outgoings to a minimum.
After wages and benefits, rent is going to be your next biggest predictable overhead. Buying a property will have expenses like mortgage repayments and property taxes. Rent a property and you’ll most likely have to pay a flat monthly fee and maintenance charges. Renting/buying in less populated areas away from the city center is the best option if you want to keep your rates to an absolute minimum.
You need to protect your business from potential risk and that’s where insurance comes in. Depending on the nature of your business, there are some types of insurance that you’ll absolutely need. Professional liability, property, product liability insurance, interruption insurance, vehicle insurance and life insurance are some of the most common types that owners require. To make sure you’re getting the best coverage, it’s best to check things like the cash surrender value of life insurance, the terms of cover, premiums, add-ons, grace periods and multi-policy discounts.
Whether you’re running a multi-million-dollar business or you’re just starting out, you’ll need equipment. The cost and amount of equipment you’ll need will depend on the market you’re in and the size of your company. Buying used equipment instead of brand-new machines will help to keep your costs down. Also, buying machines that perform multiple functions is a great way to save money.
The ongoing costs of keeping your business operational will eat into your profits. Given that these are expenses such as heat, light, gas, water, internet and basic office supplies like paper and ink, it can be difficult to reduce spending in this area. That said, installing energy efficient machines and using less power can help. Make sure your employees unplug machines that are not in use and try to go digital instead of using paper when possible. Also, renting or buying a smaller space will help to reduce your utility expenses overall as you will not be paying for heat, power and light that you don’t need.