Question

In: Accounting

A wine company CEO is frustrated with the company's lack of success in consistently reaching profitability....

A wine company CEO is frustrated with the company's lack of success in consistently reaching profitability. Employees have been reduced, pay and benefits frozen and even business travel curtailed such that G&A expenses cannot be managed down much further. What is the other big expense item that management should be closely examining?

Solutions

Expert Solution

1. Equipment.

Your business probably needs equipment, whether it’s a multi-million-dollar manufacturing piece or just a traditional copier/printer. that means spending at least several hundred dollars on initial equipment. Save money by finding devices that provide multiple functionalities in a single package or by buying used equipment rather than new. Make sure you understand the decreased life expectancy and/or performance of the used equipment.

2. Rent (or mortgage).

Aside from staff costs, this will be your biggest predictable expense. If you’ve purchased a building outright, that means making a mortgage payment and paying property taxes. If you’re renting, you’ll probably pay a flat rate. Even a small business can expect to pay several hundred to several thousand dollars a month in rent, depending on your area. Keep your space small and away from heavily populated areas or consider the option of subleasing your commercial space.

3. Marketing and advertising.

If you want your business to generate more leads, interest, and brand recognition, you’ll need to invest in marketing and advertising. However, not all strategies are the same. You can save money by focusing on the strategies most likely to give you a high return on investment (ROI) or those that work especially well for your industry. It may take some time for you to find these candidates through experimentation, interviews with other business owners, and research. However, it’s worth the investment if it means getting a better rate and a higher return.

4. Repairs and maintenance.

If you own anything on behalf of the business, including your own building, your equipment, or personal devices like laptops, you’ll need to set aside money for repairs and maintenance. Preventative maintenance and proactive repairs tend to pale in comparison to the cost of major repairs and replacements. Work to find a reliable contact in each category who can handle these routine tasks.

5.Travel, dining, and entertainment.

If your business involves traveling to meet with clients, pitch your company, or recruit talented people around the country, you might see significant expenses in the travel, dining, and entertainment category. You’ll need to reimburse yourself or your employees for when they travel to outside locations, take clients out to dinner, or even discuss business at entertainment events like sports. Keeping costs low here is a sacrifice. You’ll need to spend less money on fancy client dinners and substitute some video calls for in-person meetings. If it saves you hundreds of dollars a month, it may be worth it. This depends heavily on your industry, target market, and how much your business can afford to spend.

6.Professional fees.

Though some entrepreneurs like the idea of trying to handle everything themselves, there are some areas where novices can do more harm than good. For matters relating to the law, taxes, or other complex disciplines, it’s better to hire someone who knows what they’re doing. That means paying a steep hourly rate or retainer fee. Fortunately, if you do some digging, you can probably find someone affordable in each area who you can trust for sound advice. Start by asking other local business owners who they use and why, then interviewing them to get their perspective.

7. Tax preparation.

Business taxes can be complex, covering multiple categories like income tax, estimated taxes, self-employment taxes, withheld taxes, and excise taxes. If you aren’t prepared for these expenses, they can take you by surprise. And, if you don’t pay them appropriately, you could get yourself in legal trouble.


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