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Smart Small Business: Turning Fixed Costs into Variable Costs

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What do entrepreneurs, small businesses, start-ups and freelancers all have in common? In addition to overwhelming stress levels, they share a need to remain financially nimble, which enables them to adapt to today's ever-changing marketplace. 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 key fixed expense areas that should be addressed.

"Cutting back on overhead expenses is a great way for companies to save money and remain financially prudent," explains Steve Strauss, USA Today small business columnist. "Small businesses often get locked into large, fixed expenses unnecessarily. It's essential to stay fluid as work demands ebb and flow. Business owners often see these expenses as unavoidable or costs that can only be reduced in the long term. There are immediate ways to adjust these expenses to keep businesses afloat and profitable in times of crisis, and as a long term strategy."

Personnel: Hiring full-time employees comes with the added expense of healthcare, 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% of the nation's workforce. And, that number is expected to grow. According to a survey conducted by Regus (LSE:RGU.l), global leader in flexible workplace solutions, in September and August of 2009, 59.6% 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.

Facilities: 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 is 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 workforce 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. Regus offers a full range of cost-effective business-ready workspace products including fully furnished, fully equipped offices, meeting rooms with on-site business and administrative support services.

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," said Guillermo Rotman, chief executive officer of Regus Americas. "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."

Goods & Services: 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. What's more, many sub-contractors will ship directly to a customer's clients as necessary -- cutting out the middle man and eliminating unnecessary expenditures.

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