Lately, it seems like we’re waking up to one bad news after another. From rising interest rates and rumblings of a recession to massive tech layoffs (with data compiled by Layoffs.fyi), one thing is clear: the economy is slowing down and we need to buckle up for the ride. More than ever, knowing the ins-and-outs of how to save money for your business—and for the long haul—is key.
Saving money is a critical part of securing a stable financial future, and it’s easier said than down. So let’s break it down.
To start saving for a rainy day, you can approach it in 5 ways:
- Create budget — and sticking to it as best you can
- Reduce unnecessary expenses
- Avoid debt
- Cut back on eating out
- Budget for an emergency fund for hard-to-predict expenses
With these approaches in mind, read on below to find out how you can begin to achieve your goal of saving money and spending smarter for your business.
1. Create a budget
The first place to begin when looking to save money (and spend smarter) is by listing all your monthly income and expenses. This will give you a clear picture of where your money is going and where you can cut back. Creating a budget is more science than art. Compared to the subjectivity of art, the numbers don’t lie and it’s up to you to begin the work of understanding your income and expenses, categories of expenses, and reporting to stay on track towards saving money for a rainy day or season. A great place to start is by creating a budget using these 6 curated steps.
2. Reduce unnecessary expenses
The rise of inflation and labor expenditure means that the cost of doing business is rising from every angle. From increasing human capital costs to property taxes and costs of goods sold, it may feel like a never ending cycle.
As a small business owner, any extra cash or capital is crucial for re-investing back into your business or for a rainy day. Creating a budget for the first time can often uncover many hidden aspects of your spending habits. Take a closer look at your monthly bills, and see if there are any services you can cancel or negotiate a lower rate for, such as your cable or internet service.
From a business standpoint, look towards your monthly business expenses to find areas to ‘trim the fat’. Some of these include:
- Inventory: In 2022, inventory was the second biggest cost for small businesses, which in turn led to the popularity of drop shipping. If your eCommerce business involves inventory, you may want want to consider this as an alternative option.
- Marketing and Advertising: Unsurprisingly, in 2022 advertising accounted for only 1% of a business’ revenue on average, as most small businesses are adopting social media to achieve the same results that traditional media was once responsible for.
- Paid Subscriptions: Reviewing contracts, such as annual subscriptions, can help uncover subscriptions that are not as useful as initially intended. By deprecating these or looking free subscriptions or resources instead, you can essentially ‘free up’ budget for other parts of your business. Other options are to trial software first with companies that offer their tools as freemiums, or to look for or negotiate for subscription sales that can help cost costs. After all, they do add up!
Pro Tip: Use the 50/30/20 budgeting method as a guide to understand which expenses are essentials and which ones are just wants.
3. Avoid debt
This might be a no-brainer, but it’s an important one to call out. High-interest debt, like credit card debt, can quickly drain your business finances. If you own a business credit card in addition to your personal card (which you should), don’t forget to create a budget for business spending too. Pay off debt as soon as possible and avoid taking on new debt, unless it’s for a necessary expense.
4. Cut back on eating out—unless they’re business meals
Eating out can be one of the biggest expenses. Consider cooking meals at home, or finding ways to make eating out more affordable, such as by choosing a cheaper restaurant or opting for a less expensive dish. Business meals, on the other hand, are often unavoidable. For these meals, don’t forget to use your business credit card instead of your personal one! Explicitly separating these expenses out will help with managing expenses for tax season.
5. Budget for an emergency fund
You can never fully predict business expenses and that’s precisely why an emergency fund is so important. Whether it’s replacing your laptop or dealing with increases in office rent, setting up a fixed amount in your business budget can help you save for a rainy day.
Pro tip: Consider having allocating a fixed emergency fund savings category in your budget right along with your typical categories like rent, shipping, taxes, licenses, marketing and more. If you use TrulySmall Expenses, you can add a budget category in 3 simple clicks to begin tracking and spending smarter.