In the world of small business, every penny counts. It can be difficult to keep track of where your money is going, and even more difficult to find ways to save. That's why we've put together this comprehensive guide to help you understand where small businesses spend the most money. We'll cover everything from payroll and rent to insurance and debt repayment, and we'll provide you with tips on how to save money in each area. Find out more about how Palm can help your small business win today.

People & Payroll

Payroll is typically the largest expense for small businesses, accounting for up to 50% of total operating costs. This includes salaries and wages, bonuses and commissions, payroll taxes, and employee benefits.

Salaries and wages are the biggest component of payroll, and they can vary significantly depending on the industry, location, and size of the business. Bonuses and commissions are also common, and they can be used to incentivize employees and reward them for their performance. Payroll taxes include Social Security, Medicare, and federal and state income taxes. These taxes are withheld from employees' paychecks and paid to the government by the employer. Employee benefits are another important part of payroll, and they can include health insurance, retirement plans, and paid time off.

It's important for small businesses to carefully manage their payroll costs in order to stay competitive. This can be done by controlling overtime, offering competitive salaries and benefits, and using payroll software to automate tasks and streamline the payroll process. By following these tips, small businesses can save money on payroll and improve their bottom line.

Rent & Utilities

Rent and utilities are another major expense for small businesses, accounting for up to 20% of total operating costs. This includes rent or mortgage payments, property taxes, insurance, maintenance and repairs, and utilities such as electricity, gas, water, and internet.

The cost of rent or mortgage can vary significantly depending on the location and size of the business. Property taxes are also a significant expense, and they can vary from one jurisdiction to another. Insurance is another important expense, and it can protect businesses from a variety of risks, such as fire, theft, and liability. Maintenance and repairs are also essential, and they can help to keep the business premises in good condition. Finally, utilities can add up quickly, and it's important to find ways to conserve energy and water in order to save money.

There are a number of ways that small businesses can save money on rent and utilities. One way is to negotiate a lower rent or mortgage rate. Another way is to find a smaller space or to share space with another business. Businesses can also save money on utilities by installing energy-efficient appliances and by using energy-saving practices.

By carefully managing rent and utility costs, small businesses can free up more money to invest in other areas of their operations. This can help them to grow their businesses and to achieve their financial goals.

Cost of Goods Sold

Cost of goods sold (COGS) represents the direct costs of producing the goods that a company sells. It includes the cost of materials, labor, and overhead costs directly tied to production. Shipping and handling costs, as well as sales commissions, are also factored into COGS.

For small businesses, COGS can be a significant expense, especially for those that manufacture or produce their own products. It's important to accurately calculate and manage COGS to ensure profitability and make informed decisions about pricing and production.

To calculate COGS, businesses must add up all the direct costs associated with producing their goods. This includes the cost of raw materials, components, and packaging. Labor costs, such as wages and benefits for production workers, are also included. Additionally, businesses should factor in any overhead costs directly related to production, such as rent for the production facility, depreciation of machinery, and utilities used in the production process.

Once all the direct costs are tallied, businesses can calculate COGS by subtracting the cost of beginning inventory from the sum of the cost of goods manufactured and the cost of ending inventory. This formula ensures that only the costs associated with the goods sold during a specific period are included in COGS.

Effective COGS management is essential for small businesses to maintain profitability. By accurately tracking and analyzing COGS, businesses can identify areas where costs can be reduced, optimize pricing strategies, and make informed decisions about production levels. Additionally, accurate COGS reporting is crucial for tax purposes and financial statement preparation.

Small Business Insurance

Small business insurance is a crucial aspect of protecting your company from potential risks and financial losses. As a small business owner, you should carefully consider the types of insurance coverage that are necessary for your business to ensure its long-term success and sustainability.

There are several key types of insurance that small businesses should consider:

**General liability insurance:** This type of insurance provides coverage for claims arising from bodily injury or property damage caused by your business operations. It protects you against legal liabilities and financial losses resulting from accidents, injuries, or damage to third-party property.

**Property insurance:** Property insurance safeguards your business's physical assets, such as buildings, equipment, inventory, and furniture, against damages or losses caused by events like fire, theft, vandalism, or natural disasters. It helps you recover the cost of repairing or replacing damaged or lost property.

**Business interruption insurance:** This insurance protects your business against financial losses incurred due to disruptions or interruptions in your operations. It covers expenses such as lost profits, ongoing expenses, and extra costs incurred during the period when your business is unable to operate due to covered events like natural disasters, fires, or equipment breakdowns.

**Errors and omissions insurance (E&O insurance):** Also known as professional liability insurance, E&O insurance protects your business against claims of negligence, errors, or omissions in the services you provide. It covers legal expenses and potential damages awarded to clients who allege that your professional services caused them financial or reputational harm.

**Workers' compensation insurance:** If you have employees, workers' compensation insurance is mandatory in most states. It provides coverage for medical expenses, lost wages, and disability benefits to employees who suffer work-related injuries or illnesses. This insurance safeguards your business from potential legal liabilities and ensures that your employees receive the necessary support during such unfortunate circumstances.

It's important to thoroughly assess your business's specific risks and needs to determine the appropriate insurance coverage. Consulting with an insurance professional can help you understand the intricacies of each insurance type and tailor your insurance portfolio to effectively manage risks and protect your business.

Debt Repayment

Debt repayment can be a significant burden for small businesses, especially those just starting or those heavily reliant on external financing. However, there are several strategies that can help businesses save money on debt repayment and improve their overall financial health.

One effective way to save money on debt repayment is to make extra payments whenever possible. By paying more than the minimum required amount, businesses can reduce the total interest paid over the life of the loan and pay off the debt sooner. This approach can be particularly beneficial for loans with higher interest rates, as it allows businesses to make significant progress in reducing their debt burden.

Another option for saving money on debt repayment is to refinance existing loans. Refinancing involves taking out a new loan with a lower interest rate to pay off an existing loan with a higher interest rate. By securing a lower interest rate, businesses can reduce their monthly payments and save money on interest charges over time. However, it's important to carefully consider any associated fees or penalties for refinancing before making a decision.

Consolidating multiple debts into a single loan can also help businesses save money on debt repayment. By combining several debts with different interest rates and terms into one loan, businesses can simplify their repayment process and‌ potentially secure a lower overall interest rate. This can lead to reduced monthly payments and savings on interest charges.

Balance transfers can be another useful strategy for saving money on debt repayment. Some credit cards offer balance transfer promotions with 0% introductory interest rates for a limited period. By transferring high-interest debt to a card with a 0% interest rate, businesses can save money on interest charges during the promotional period. However, it's crucial to pay off the transferred balance before the promotional period ends to avoid incurring high interest rates.

Finally, businesses can also save money on debt repayment by negotiating with creditors. In certain situations, creditors may be willing to work with businesses to lower interest rates or adjust repayment terms. By communicating openly and presenting a compelling case, businesses may be able to secure more favorable terms and reduce their debt burden.

Find out more about how Palm can help your small business win today.