As a business owner, it’s always a good idea to periodically review your expenses and see if there are areas that can be reduced or eliminated. Fleet needs vary, personnel come and go, and monthly expenses are expected to rise each year, but there could be savings in the everyday bills we take for granted.
Many operators are tempted to simply increase money coming instead of taking the time to look at the money that is going out. In fact the biggest mistake small business people can make is being blinded by the top number on the balance sheet. It’s the combination of upping revenue and slashing expenditures that will make an impact. Even cutting little fees and renegotiating terms could add up to big savings. Below are six of the best places to start finding hidden money in your budget.
1. Re-examine Your Insurance Needs
When you purchase a commercial auto insurance policy, you must choose a deductible—the amount of money you are willing pay out of pocket in the event of an auto accident. Consider raising deductibles on physical damage coverage. Choosing a higher deductible will result in a significantly lower annual premium. Randy O’Neill, vice president of Lancer Insurance says, “Physical damage coverage deductibles of $2,500 or even $5,000 are worth looking into. We believe that operators of limousine fleets of 25 or more vehicles should consider a liability coverage deductible of $10,000.” Just remember that this will be an upfront expense if you have an accident, so make sure that the math makes sense.
Consider choosing a different payment option. Paying for your commercial insurance policy in full will save you various administration and interest fees. In addition, some companies offer a discount of up to 10 percent for paying in full. You can also save on administration fees by choosing the electronic funds transfer (EFT) option. With an electronic funds transfer, your insurance payment is taken out of your bank account. You may find major savings by not letting the insurance company finance your premium.
2. Meet With Your Top Vendors and Your Landlord Annually
Make a list of your vendors. Ask each of your vendors to meet with you and do an analysis of your account. Go into each meeting fully informed, and keep the pressure on to get the best possible prices. Do not let a personal relationship with a vendor cost you the best possible prices.
“Get a current and accurate pricelist from your vendors,” says Johan De Leeuw, president of Olympus Worldwide in Atlanta.” If an oil change is $18 and we see charges to our card exceeding that amount, I get an explanation. I recommend paying your vendors on a credit card immediately once the work is completed. This way they do not have to wait for a check. Vendors like this and should give you stronger negotiating ability. Hold vendors accountable and ask questions when the cost exceeds the expected or quoted cost.”
Bob Bellagamba, president and founder of Concorde Worldwide Limousines in Freehold, N.J., found an innovative way to save money. “We call ourselves a paperless office but we noticed the significant expense we made on paper. We appointed a ‘paper patrol’ and asked them to analyze and help us reduce the amount of paper we consumed. We offered them a cash bonus based on potential savings. The results were amazing: We saved thousands of dollars and tons of paper and it was very easy.” Bellagamba says that if you look at savings in a different way, they are even more impactful. “Let’s say that we save $2,000 on paper—that goes directly to our bottom line. You have to do many, many airport transfers to net $2,000 to the bottom line.”
Rent is also an important area to scrutinize. Rates swing with the market, so if you locked in a higher rate several years ago, you could have some room to renegotiate. Shop around and see what rents for similar properties are in your area; be prepared. Meet with your landlord and ask for a reduction in rent or a guarantee that your rent will not be raised for a set number of years. Depending on your local commercial real estate market, your landlord might work with you. Carefully observe current conditions, try to see things from the landlord’s perspective and negotiate accordingly.
“It requires you as a tenant to think a little bit like an investor, knowing that there are cycles in real estate values,” says attorney Janet Portman, co-author of the book, Every Tenant’s Legal Guide. “Ask: Where am I in the cycle? If you think it’s not going to last, you may not want a long-term lease. The alternative is a month-to-month lease,” Portman says. “It’s all about power and assessment of the market. If landlords can insist on a long lease, they’ll get it.”
3. Minimize Your Business Telephone and Internet Expenses
Look to bundle cable, Internet, and phone. If you are currently paying for these services separately, you may be throwing your money away. Both your phone carrier and cable provider can likely provide you all three of these services for less money. Review their offers and go with the most economical one. Make sure you are using the services you are paying for.
Myron Fonseca, CEO of Ambassador Limousine & Transportation in Miami, Fla., found major savings in 2011. “By switching to a VoIP phone system and bundling it with my Internet service provider, we were able to cut about $150 a month from the bills.”
4. Re-evaluate Your Borrowing Expenses
Revisit your local bank, credit union, or leasing company. The last few years the thought of borrowing any money for small business people was a pipe dream. But the economy and business climate have improved and more money is available for small business owners. Bellagamba says, “Make sure your personal finances and credit are in good standing. Your personal credit is your business credit. After almost 30 years in business, my personal financial history is as important as my business record, and I still need to personally guarantee every loan.”
It’s no secret that banks have also been finding ways to increase charges on even the most basic of accounts, so it’s definitely worth looking at how much you spend on those fees alone. They could add up fast! It might be time to negotiate or even switch—either to a different type of account or a new financial institution entirely. Banks are for-profit businesses while credit unions are non-profit organizations offering a wide array of financial services. If you have an account with a credit union, you are a member and an owner. Membership is limited and you must be eligible in order to join. Explore the option of joining a credit union. If you are loyal to your bank and it has declined one of your loan requests in last few years, see if it is time for a second look at your request.
Leasing companies borrow money from banks and resell that money to business customers. Many leasing company customers cannot borrow money from traditional lending sources. Even leasing companies have become more aggressive with their rates. Ask your lender for a better rate and if you can make a strong argument you just may get a point or two reduction in the rate.
5. Use Staff Effectively and Efficiently
Most companies schedule their staff as if they owned a conventional business. Operating at “full strength” Monday through Friday 9 a.m. to 5 p.m. may be the wrong way to do it. De Leeuw says it is important to cite the 24/7 nature of the business in any employment agreement you may enter into. “We do a lot of group business,” he says. “Often Sunday morning is one of our busiest times and when we need staff to be here. Everyone on our team understands and accepts this as what is ‘normal’ when you work for Olympus. We must staff according to our clients’ needs—which must be given the top consideration.”
Fonseca added, “Small business owners get trapped into thinking that they have been doing it this way for so long and it’s the only way to do it. I recently analyzed my dispatch and reservations team and realized that for a two-hour period during the day they were idle. So I changed their schedules, moved one person back an hour and one person up and hour on their start times. This now allows me to cover more hours and for each of them to be more efficient during those times.”
Explore the option of eliminating or reducing the hours of your current staff. John Critchett, owner of Palm Beach Tours and Transportation in West Palm Beach, Fla., has outsourced his overnight dispatch service for almost 3 years. Callers to his company at 3 a.m. receive cheerful service from live dispatchers who have the company’s dispatch screen in front of them. “It has been a great situation for us. We are saving money and our clients have seen zero drop-off in service levels.”
6. Track How Your Marketing Dollars Are Being Spent
It used to be that a Yellow Pages ad was the way to generate customers. Now there are literally thousands of ways to get your name out there. From local publications and online to word-of-mouth advertising and partnering with area businesses, marketing has become more creative and more important than ever to impress a prospective client. What you did 10 years, 5 years, or even a few months ago may no longer be attracting customers and is ultimately wasting your valuable dollars.
“To do this you really need to track where each ride is coming from by asking each client,” says Fonseca. “If most of your business is referrals, then it’s time to invest money into someone who can go to business networking or travel events. Nowadays people still think they can just throw up a website or spend money in SEO and business will come. I call these emotionless customers. The reality is that decision-makers are not doing random searches on the Internet to find people they want to work with. They are searching through networking and business organizations that are referral-based such as your chamber of commerce, bridal association, and hotel and business associations. Places where people put faces to their referrals!”
There are dollars to be saved painlessly for almost every operator. Take a hard look at these six items and you will likely find an area that you have overlooked or not considered in a long time. Remember, a reduction in your fixed expenses goes directly to your bottom line. Adding revenue does not cure everything. A smart entrepreneur understands that SAVING money can be more impactful on your profitability. //LD