How to lower your Fixed Expenses

CUTTING INSURANCE, RENT AND WAGES

It's often easier for a small business owner to lower fixed expenses than variable expenses. That's because suppliers are not likely to reduce costs without incentives such as quick payment or volume orders. That's why you may have a better shot at reducing fixed expenses such as rent, travel, utilities, insurance, accounting costs, legal, and travel. Here are some suggestions for lowering three types of fixed expenses: insurance, rent, and wages.

INSURANCE

The best way to save money on business insurance is simply to work with a professional who will   help  you  figure out what coverage you need and offer you a competitive price. An agent or broker is paid by the insurance company, by commission. Some of them are independent—that is, they shop around among various companies to find the right policy. Others work exclusively for one insurance company.

 

 

Obviously agents or brokers who work with only one company will try to sell you that company's products, often even if they don't provide the best coverage for your business or offer you the best price. An independent agent or broker is also paid by commission, but will shop around to find you the right coverage at the right price.

Finding the Right Insurance Pro

 

 

The process of finding the right insurance pro is a lot like finding the right accountant, lawyer, or 
 other professional. The best place to start is by asking for recommendations from others who do business in your field. Ideally, you want some who will periodically provide you with information about new policies, give you quotes from other companies from time to time, and help you if you have to file a claim.

• Reduce risks.
  Risk management minimizes your insurance claims and brings your premiums down. Implement procedures to make sure that you aren't taking on risky employees—for example, by checking the driving record of anyone who will drive for you. Many companies offer lower premiums or discounts to policyholders who take certain safety precautions. Installing smoke detectors or a security system are a couple of steps you can take that may get you a lower-priced policy.

• Find out if a client's insurance will cover your business.
  In some business fields, your clients may have to provide the insurance. That can save you policy dollars.

• Prioritize your greatest risks.
  Once you've dealt with required coverage, spend your money where you need it the most. If you face a serious risk of a loss that could wipe you out, put your insurance dollars there first. 

• Don't duplicate coverage.
  Carefully review your homeowner's or renter's insurance policy, for example. If you have only a few relatively inexpensive pieces of business equipment, your existing property coverage may be adequate. Or, you may be able to purchase an inexpensive endorsement to increase your coverage. Home-based businesses that have few business-related visitors can often get a relatively inexpensive liability endorsement. You can also add an endorsement to increase coverage for business equipment.

• Consider insurance through an association.
  If you belong to a trade organization, professional group, or other business association, you may be eligible for special rates on certain types of insurance. 

 FIXED EXPENSES: YOUR LEASE. IS A LONG-TERM OR SHORT-TERM BETTER? 

You're better off with a long-term lease if your rent is low and commercial property values increase. A short-term lease is better if commercial property values decrease and comparable properties rent for less. That's because you will get out of the lease sooner and be able to negotiate a newer better deal. So, in order to best protect your cash flow, you have to guess at what's going to be happening with this particular property within the next few years and what's likely to be happening with your business.

Renegotiate Your Lease 

Once the lease is signed you may be able to renegotiate in certain circumstances. If the value of similar commercial property has dropped, and if you're close to renewal you can tell your landlord, “I'm overpaying for rent now. If you renegotiate and give me a better rate, I will agree to a renewal. Otherwise I may take my chances and look for a new place.” A riskier approach is if your business is having serious problems. You can tell the landlord, “Look, given the current business climate, I'm going to have trouble under the terms of the existing lease but if we can renegotiate, I can remain.” In other words, you're advising the landlord to either renegotiate or end up with a defaulting tenant—always a money-losing situation for a landlord in poor economic times. The risk, however, is that if you personally guaranteed the lease—which is quite common—the landlord can go after your personal assets if you default.

Source: SMEToolkit

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