Improve Your Cash Flow By Saving Money

In last month's column we detailed how to increase your company's cash flow through determined, systematic collection of money owed to you. This process is critical to the financial survival of a new, small business.

Equally important is to learn how to spend your company's money wisely. Your objective is to scrimp on what is not important in order to buy what is.

Many new entrepreneurs are lured into equipping their new office with every imaginable piece of office furniture and equipment. They buy everything new, often because it is faster to walk into a Office Max or Office Depot and go up and down each isle, like a kid in a candy store, than to really shop hard to find deals, used equipment and garage sale items.

Stop! We are not talking how to spend your weekly allowance of $1.00 here, we are talking some real money--often in excess of $5,000 by the time you throw in the purchase of a new computer.

But new business owners also often end up paying more cash than they need to because they keep such poor records and do not use qualified tax advisors. They end up overpaying their business income taxes, which amounts to a gift to Uncle Sam.

To receive the maximum benefit from each hard-earned dollar you either invest or earn you must be eternally vigilant in two financial activities: reduce expenses and lowering your taxes. Let's look at some practical ways to save money.

Saving On Expenses

• Automate your business records. Use one of the powerful small business accounting programs on your computer to organize expenses so you can compare them over time and try to reduce them.
• Avoid troubling customers. These people are never satisfied and run up your expenses in the process.
• Learn about postal discount programs, such as zip+4 and bulk mail. Ask for USPS Publication 25--Designing Business Letter Mail.
• Watch your stationery use. Try to reuse envelopes you have been sent. Buy both plain manila and white envelopes. Use the white only for new sales prospects you want to impress. Consider a package deal from your local office supply warehouse or speedy printer on business cards, letterhead and envelopes.
• Use a postal scale--don't guess on weight. Keep a variety of stamps or rent a postage meter for $16-$20 per month.
• Use fax or e-mail in place of the U.S. Postal Service.
• Every professional's fee is negotiable--lawyers, accountants, architects, etc. Ask if you can do part of the work yourself.
• Ask for a discount for paying up front in cash.
• Confirm appointments the day or morning before--save wasted time.
• If you use an accountant, look into what a bookkeeper can do well and replace the accountant on these tasks.
• Go to the library or check into your local recycling center for copies of current business magazines, instead of subscribing.
• When using Federal Express, ask for standard overnight service which is $7 cheaper than express service and often gets there at the same time.
• Learn to barter. Trade what you are good at for what others are good and which you need.
• Use college students to help with market research and planning at cut rates.
• Call your local college business school and ask them if they have a Small Business Institute.
• Annually budget starting at zero. Put down every business expense on one sheet of paper. Analyze every one--do we really need this?
• Do multiple things when traveling. Visit a competitor or a supplier. Go to a trade show or trade association. Check local business opportunities.

Saving on Taxes

After salaries, taxes are usually the second largest business expense you incur, but because they are often calculated only once per year, you may lose sight of how to plan for tax reduction every month.

Here are some tax-reduction tips:

• If your income drops, look at the earned income credit, which can lower taxes over $2700 if your taxable income is below $24,000.
• Incorporate and leave a large part of your profit in the corporation. Profit up to $50,000 is taxed at 15% versus a personal rate of 28-31%.
• Talk to a tax accountant at mid-year to see what expenses can be logically increased.
• If you have extra cash, open up a Keough retirement plan which allows you to put away, tax deferred, from 13-20% of your profit.
• If health care costs are high, consider incorporating. All unreimbursed medical expenses for you and your family can be deducted.
• If your children are over 14, consider hiring them. Their income is taxed much lower than yours and they still get their allowance.
• Don't forget to take entertainment expenses while you are at networking events. Consider expenses by their after-tax cost. For example, typical expenses cost about 50%; a business meal about 75%; a retirement contribution about 60%; and a medical insurance premium about 80%.
• Keep as perfect records as possible--don't lose deductions.
• If you work at home and hire a baby sitter, don't forget to take the child-care credit.
• Donate old equipment to a good cause. You will most likely get a bigger deduction than you could sell it for.
• If you buy a new car, try to drive it more than 50% of the time on business-then you can deduct depreciation instead of just mileage.

These money-saving tips are designed to stimulate your thinking about what additional ways you can save money in your business. Use your imagination in place of spending needless money!

About the Author

Jeff Williams worked for big business for years, until he decided to take his career in his own hands by establishing his practice as a business coach. Now Jeff offers you the information he had to learn the hard way -- and he shares it with you in his Ultimate Boomer Business Start-Up Guide.