Your Somerset Area Small Business Accountant Explains Non-Panicky Cost-Cutting (Part 1 of 2)

Your Somerset Area Small Business Accountant Explains Non-Panicky Cost-Cutting (Part 1 of 2)

October 16, 2012

The government figures are still telling us that we are in a recovery. The recently-released unemployment figures (where it officially went down to 7.8%) have caused great controversy, however — mostly for the reason that the economy doesn’t seem like it’s recovering. And that’s true, here in Somerset Area, at least from what I have seen among some clients in our accounting practice.

And, I know plenty of business owners who are still facing “headwinds”. So, the natural temptation for these is to slash costs like a wild samurai. That’s not always a bad idea, actually.

But in addition to cutting costs for greater profitability, it’s also a good idea to shift business costs to 2013, because chances are very good that taxation rates will be higher next year.

So, I have some advice for you on the cost-cutting front, specifically, this week.

But before I get into it, I’d like to set up this whole notion of cutting costs, first, because there’s a “right” way and a wrong way to do it.

One of the most tempting costs to “cut” is in the area of marketing and sales.
 But that isn’t the place to start a purge. These are the engines of growth for your business. In times like these, you can be like a doctor who amputates the wrong limb (forgive the grisly analogy–but it fits).

And so you want to cut the *right* items if you’re facing a crunch.

Cost-cutting is a temporary measure. The way to break through a tight cashflow is to re-invent your sales process and fix the SALES problem. It’s a big reason I write these notes to my clients and friends — so that I can provide a small inspiration to you in this area.

So, with those two caveats said, here are some thoughts for you…

Your Somerset Area Small Business Accountant Explains Non-Panicky Cost-Cutting (Part 1 of 2)
This is a rich topic, and it may extend into more than two weeks’ worth of notes.

1. Use One Fixed Expense To Replace a Monthly Cost

Here’s a good example: Do you have one of those filtered water deals, where the rep comes by every so often and gives you more 5 gallon jugs? Instead of buying all that water (to the tune of several thousand dollars over the course of a year), install a filter and fill those jugs for free with water you already pay for. For a few hundred dollars, you can install a high-pressure filter to your office kitchen sink. And you no longer need to coordinate drop-off times with the water folks.

You don’t have to stop with water, but that’s one way to get your mind moving on areas such as this.

2. Deduct for Tangible Assets (Section 179)

This nice little provision in the federal tax code allows business owners to deduct for certain tangible assets, such as property and equipment. For 2012, the Deduction Limit for most new and used capital equipment, and even certain software, is at $139,000 after inflation (this would be only $25,000 prior to the current law). The IRS has also set the 2012 limit for equipment purchases generously at $560,000. Prior to the current legislation, this would have been at only $200,000.

There is also for 2012 a 50% Bonus Depreciation in place, for qualified new equipment purchased this year, which can also be taken by some businesses after the Section 179 deduction.

This is something you should let us know if you’d like to pursue, ASAP, as we can help you with it, directly!

3. Creative Employee Compensation

Short on cash to cover bonuses, or even payroll? Offer a few extra paid vacation days for the coming year instead. That way, you can still compensate employees for hours they didn’t work–but you don’t have to lay out all that cash in one shot. (Note: This may be a tough sell, but it’s worth a try.)

I’ve got plenty more, including some specific resources for you, but I’m trying to keep this pithy and actionable, so I’ll be back with more next week.