3 Expenses to Avoid When You’re Starting Your Small Business

By Matthew Toren

2 min read

 1. Rent 

Office space and salaries are by far the two biggest overhead operating expenses for small businesses. First and foremost, if you can avoid renting office space—do! Postpone office leasing until your home office, garage or other private space is bursting at the seams, and you have no other options. Adding rent to your overhead will be one of the greatest hits to your bottom line.

If you’re already renting, odds are good you’ve consistently paid incremental rent increases over the years. Those are expenses you come to expect and hopefully, budget for in your financial planning. However, have you ever stopped to see what the rents are in your area now? When you moved in, you probably spent a significant amount of time negotiating rent and researching the area, or hired a broker to do that for you, before committing to a lease. But when leases are coming due or in the event of large business changes (i.e., construction outside your building restricting access, significant damage, etc.) you can and should look into renegotiating rental terms with the property manager.

A third option to consider is purchasing your own small office space, if you can afford it, and subleasing out office space to offset the cost of your own mortgage payment or rent. This can be an effective way to get rental leasing income while reducing your own rental overhead and all while building equity in a tangible asset. Again, this won’t be an option for many but is one you might consider exploring or talking to your accountant about to see if it’s viable.

 

2. Staff

As previously mentioned, staff is a huge overhead cost for small businesses. You have to balance the fine line between meeting business demand with adequate staffing with running a lean P&L. Staff come with all kinds of expenses you should be prepared for that go beyond their salary alone. You’ll need to consider expenses associated with benefits, vacation, sick time and payroll taxes to start. So if you don’t have staff yet, put this expense off as long as possible.

One great way to get the help you need without the same hit to your bottom line is to leverage outsourced help and contractors for help with projects and demands as you need to ramp up and address business-specific needs. This helps you by only utilizing the workers you need, when you need them, while also eliminating the need for the expense of benefits, taxes and other employee considerations.

 

3. Insurance Premiums

Make sure that you have the insurance policies and premiums you need that will protect you, while at the same time not being “over covered,” with policies that extend beyond your needs or growth stage. Premiums and policies change, and you should annually be reviewing your insurance policies to see where you can save costs, so long as cutting costs doesn’t negatively impact the safety of your coverage.

You can and should make an effort to negotiate better rates or more coverage for the same premium you’re paying. Consider moving coverage to another carrier if they’ll give you better rates or look at consolidating all your insurance policies (think auto, business, building, personal, etc.) into one umbrella package at one company. If you’re a long-time customer, don’t be afraid to leverage that history to negotiate better terms for your insurance policies.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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