Smart Small Businesses Stay Nimble: Turning Fixed Costs into Variable Costs

Overwhelming stress levels aren’t the only things shared by entrepreneurs, small businesses, start-ups and freelancers. These aggressive, independent business owners and operators also share a need to remain financially nimble, which enables them to adapt to today’s ever-changing marketplace.

Cutting back on overhead expenses is the desired goal for every company, as they all need to be financially prudent. When evaluating operational costs against projected revenues, companies can avoid financial traps by scrutinizing fixed costs. Personnel, facilities and goods and services are the three fixed expense areas that offer the most financial relief when approached creatively.

“All too often, small businesses get locked into large, fixed expenses unnecessarily,” explains Steve Strauss, USA Today small business columnist. “Business owners see these expenses as unavoidable or costs that can only be reduced in the long term. It’s essential to stay fluid as work demands ebb and flow. There are immediate ways to adjust these expenses to keep businesses afloat and profitable in times of crisis, and as a long-term strategy.”

Staff When You Need Them, No Staff When You Don’t
Hiring full-time employees comes with the added expense of health care, 401(k) plans, and other benefits on top of their salaries. When project loads are low, these employees may not be working at capacity, but their related expenses don’t adjust accordingly. This equals wasted money. A smarter way to maximize your personnel investment is to hire freelancers.

Independent workers make up 30 percent of the nation’s work force. And, that number is expected to grow. According to a survey conducted by Regus, global leader in flexible workplace solutions, in September and August of 2009, 59.6 percent of U.S. companies expect their use of freelance workers to rise in the next two years. Using freelancers turns your fixed human capital costs into a variable expense that corrects against project requirements as they ebb and flow. Additionally, freelancers are often experts at their craft who offer a higher caliber of work. The Freelancers Union is an invaluable organization that helps businesses tap into the top talent in any given field.

Getting Out From Under That Office Lease
Office leasing is often a company’s biggest fixed expense. Getting locked into a long-term, traditional lease can be corporate suicide for a small business. In fact, nearly half of all office space sits empty or unutilized. There’s also the added burden of furnishing and maintaining that space. So, what if your office space could scale with your needs much like the freelance work force suggested above?

Several turnkey options exist that allow companies to pay only for what they use while presenting a professional image and providing a functioning workspace for staff. For example, a full range of rentable business-ready workspace products including fully furnished and equipped offices or meeting rooms with on-site business and administrative support services are available and affordable.

When a physical office is unnecessary, virtual offices allow businesses to instantly gain a market presence with a prestigious, high-profile business address. Support services can also include local telephone answering and mail handling services.

Paying for unused, unnecessary office space is like throwing bags of money into a bonfire. Small businesses fall into the long-term lease trap all too often. Staying nimble by scaling expenses with projected or actual revenues is essential for any size business, but is absolutely crucial for smaller companies operating on much tighter budgets.

Rethinking Goods & Services Acquisitions
Businesses no longer have to enter into exclusive, long-term contracts with most goods and services vendors. Negotiating flexible agreements upfront allows professionals the ability to revisit the contracts quarterly and shop for competitive pricing elsewhere.

And, gone are the days when overstock is vital. Just-in-time production and creative storage practices help businesses cut down on inventory overhead. Businesses should pay only for what is needed, when it’s needed. Many sub-contractors will ship directly to a customer’s clients as necessary — cutting out the middle man and eliminating unnecessary expenditures.

Cutting back on overhead expenses is the desired goal for every company, as they all need to be financially prudent. Luckily, today’s business climate offers so many innovative ways to avoid burdensome fixed expenses that seem so necessary, but, in effect, can literally destroy the company. Putting such innovative procedures in place is mission-critical. Companies simply cannot afford to run their businesses any other way.

Guillermo Rotman is the CEO at The Regus Group Americas and oversees all aspects of The Regus Group in the United States, Canada and Latin America.