1 Apr 2023
Managing your expenses is tremendously important for ensuring that your small business stays profitable and flush with cash. It’s important to keep a very close eye on your expenses to ensure that you stay within budget and don’t go into the red. Here are seven top tips for managing your expenses as a small business owner
1. Understand Allowable Expenses
Allowable expenses are costs you can deduct from your tax return. It’s important that you understand what your allowable expenses are to ensure that you track them carefully. Examples of allowable expenses include rent, staffing costs, utilities, insurance, raw materials and tools.
2. Track Everything from the Beginning
You will probably incur costs before your business officially opens, so be sure to keep a clear record of these. You will be able to claim them back later and knock a significant amount off of your tax return. It’s also a good idea to open a separate business bank account so that you can easily keep a log of all your business transactions without confusing them with personal costs. There are also many accounting and expense tracking applications that are very helpful for this because they allow you to stay organised and see a detailed breakdown of your spending.
3. Set a Weekly Expenses Budget
You may have budgeted for your expenses over the year, but big numbers can often feel abstract. Breaking your budget down into weekly goals gives you a better idea of how much you can afford to spend and allows you to identify where changes need to be made. This will also help you to understand how you are performing against your budget and put policies in place to keep your finances under control.
4. Take a Little and Often Approach
If you only update your books once every few months, you might find yourself buried beneath a pile of paperwork. It’s better to take the little-and-often approach to updating your records and do it daily or weekly. If you need to, set aside a block of time each week to do so. It’s also a good idea to install your accounting software app on your phone so that you can access information on the go.
5. Create a Cash Reserve
As a business owner, you will find yourself facing unforeseen costs at one point or another and it’s important to be prepared. Out-of-the-blue expenses such as equipment replacements or repairs shouldn’t devastate your business or blow your budget. It’s a good idea to set some cash aside to cover unforeseen expenses so that you can protect your budget with a buffer and sleep easier at night.
6. Shop Around
One way to make managing expenses easier is to find cheaper alternatives. It’s often worth shopping around and trying to negotiate better deals with suppliers to ensure that you’re not overpaying for goods and utilities.
7. Encourage Remote Working
Allowing employees to work remotely has some serious benefits for business owners. Global Workplace Analytics found that 60% of employers identify cost savings as a major benefit of allowing employees to work from home. Expenses such as utility bills, cleaning services and even refilling the coffee jar are greatly reduced when employees work from home more often. Furthermore, research by Stanford University found that employees are 13% more productive when working from home, so employers get more out of their staff whilst saving money.
Summary
Every business owner must manage their expenses carefully. It’s important to understand which expenses are allowable and track them even before the business officially opens. Setting a weekly expenses budget and taking a little-and-often approach to bookkeeping also goes a long way towards better expense management. Finally, shopping around, creating a cash reserve and allowing employees to telecommute at least some of the time can also help to make your expenses feel more manageable.
Book a free consultation here, to discuss your needs and how we can help you manage your business finances, including expenses.
25 Jan 2023
Creating a business budget is one thing; sticking to it is quite another. No matter how carefully you have laid out your budget, implementing and managing it well can prove difficult. It’s important to remember that your budget requires regular care and maintenance, otherwise it can quickly become irrelevant. Here are seven tips to help you stick to your budget and keep it up to date.
1) Be Realistic
The first step in sticking to your budget is being realistic with your estimates. It’s important to take your past financial data into account when preparing your budget. There’s no use aiming to spend £2000 per month on expenses when your records show that your expenses are usually double that amount. Remember to factor in one-time purchases, too, and keep some money aside for emergency costs.
2) Break it Down
Looking at your annual estimates isn’t always helpful for understanding where you are and what you should do right now, so zoom in a little. Breaking down your annual budget into weekly or monthly sections can make your finances feel a lot more manageable. This is also helpful in terms of getting a feel for your progress and understanding where you are right now, as well as spotting potential problems before they grow out of control.
3) Include the Odd Treat
A strict budget with zero wiggle room and no tolerance for treats will leave you feeling frustrated, tired and tempted to throw it away. Budgeting isn’t just about frugality, it’s also about being in control of your spending and making conscious choices, so feel free to incorporate a treat or little luxury here and there. Your budget should feel like a guide, not a prison warden.
4) Review Regularly
You should aim to review your actual income and expenses against your budget on a weekly or monthly basis so that you can see whether or not you’re on track and if any adjustments are necessary. For example, if you’re spending more than you thought in one area, it may be necessary to think about ways to cut costs in other places. Alternatively, if you have spent less than predicted, you may be able to squirrel more money away into your emergency fund, invest it into marketing or pay off debts early.
5) Bank Reconciliation
Bank reconciliation means comparing your cash balances against your bank statements to highlight any discrepancies. This is usually thought of as an accounting process but it’s a useful budgeting tool, too, because it involves a close examination of your spending. Therefore, prioritising this process can help you to identify opportunities for improvement and allow you to understand how closely you are sticking to your budget.
6) Separate Business and Personal Finances
It’s important to use a separate business bank account and credit card for your transactions. Confusing your business and personal finances can make it difficult to understand your spending and thus makes it difficult to stay within budget.
7) Use the Profit First Method
If you find that your expenses constantly eat into your profits, then consider using the Profit First system to manage your money.
Developed by author Mike Michalowicz, Profit First works on the basis of Parkinson’s Law, which is the principle that work expands to fill the time available. In this case, of course, that means that your expenses expand to fill your budget. By allocating profit first, it becomes easier to remain disciplined with your spending and keep expenses low.
Summary
A good business budget is not only realistic, but flexible, easy-to-understand and regularly reviewed. Your budget requires close care and attention to ensure that you stay on track. Don’t be afraid to tweak your budget when necessary and leave some room for flexibility, as it’s nigh on impossible to be 100% accurate with your estimates. However, when you implement the above tips, your business budget should prove a useful guide on the road to financial success.
Book a free consultation here, to discuss your needs and learn how we can help you.
4 Aug 2021
Are you wondering why your revenue and profit seem to be on a decline? It’s not always about the number of clients. Losses in business are fairly common. But some business owners tend to attribute them solely to inefficient sales and marketing. However, that’s not the only way a small company can lose money. Here are some of the lesser-known reasons why your bottom line may not be as high as you’d hoped it would be.
Not Negotiating with Vendors
Vendor costs directly affect a company’s profit. And a good deal with a vendor today may not stand up to the test of time. An internal audit and market analysis can indicate whether a company is paying vendors above the market average. Also, there may be vendor-related expenses that you may be overlooking.
Bad Pricing
It’s vital to get the pricing right to maximise profits. Both overly high and low pricing can put a dent in a small business’s revenue and profit. Customers and clients have to feel like they get great value in return for their payment. If a company is not making enough money, it’s often a good idea to evaluate the pricing strategy.
Accounting Issues
It’s customary for small businesses to handle all the accounting in-house. But it’s also common practice for them to pick an accountant based on the most attractive offer, never mind the accountant’s experience or the value they bring. However, poor accounting practices can lead to losses. Whether it’s the handling of expenses, tax, invoices, or something else, questionable accounting can bleed a small business dry.
Not Investing in the Business Investing is an essential driver for growth. No companies can scale without re-investing some of the profit. There are various ways to put your money to good use, such as:
- Marketing to new customers
- Hiring better employees
- Expanding the online presence
- Improving services and processes
Small businesses that don’t put money into these things will have problems sustaining growth.
High Employee Turnover Rate
Careful analysis of the workforce can uncover insights into why a small business is losing money. Employee turnover is always costly, what with the money spent on training and the break in continuity. In contrast, offering more competitive wages can work out better in the long run. It can help secure good employees, boost morale, and save costs.
Avoiding Outsourcing
It’s not necessary to do all the work in-house as many accounting, marketing, advertising tasks can be outsourced. The benefits of outsourcing are not limited to big corporations either. Outside help may represent cost savings at the same level of expertise or more. Of course, this is not to say that you should just outsource everything. It’s just an option worth evaluating.
Bad Resource Management
One often overlooked area is resource management. Besides time and money, resources such as printer paper, office supplies, and software can affect the bottom line. Overpaying for stuff and theft can lead to unwanted expenses.
Evaluate Your Business More Often
It’s critical to have a good handle on all of your company’s systems and processes. Even something as minor as the wrong software can create financial trouble.
28 Jul 2021
Every business owner must know where the money in their company comes from and where it goes. That’s why financial management is one of the most important things to keep in mind. What is a business budget? Simply put, it’s a financial plan that gives a company relevant information on revenue, expenditure, and capital. Business owners also use them as guides to forecast earnings and expenditures and perhaps to hold someone accountable for mistakes and such. If you want an accurate budget estimate, follow the six steps below.
Step 1 – Estimate Fixed Costs
The first step is to figure out the fixed costs, which is relatively easy. Simply list all expenses and then identify those that show repetitive costs that don’t change by the month. These include expenses such as rent, equipment leases, insurance, manufacturing costs, etc. Add up all the fixed costs to get the number and use it for a period of 3, 6, or 12 months.
Step 2 – Identify Variable Expenses
Variable expenses are those that are not constant – the complete opposite of fixed costs. Although it’s easy to identify variable expenses, it’s harder to forecast the numbers as they vary every month. To identify and get an accurate prediction of variable costs, it’s critical to record and tally them for a period of time. You’ll soon get an average number of each variable expense.
Step 3 – Work Out One-Time Costs
Most businesses also have one-time expenses. And although it’s not nearly as frequent as fixed and variable costs, a business budget wouldn’t be complete without accounting for the “sunk costs”. Buying new software or equipment are examples of one-time costs, so is something like getting new furniture for the office.
Step 4 – Project Your Revenue
The next logical step is to project your future revenue. After all, one of the reasons to build a business budget is to have something that would allow business owners to compare actual and projected revenue. This particular step allows for the setting of clear goals and understanding how to meet those objectives.
Step 5 – Track Profits and Losses
Figuring out the net profit margin is another necessary step. You can do this by deducting expenses, taxes, and any accrued interest from revenue. The money left over, as a percentage of revenue, indicates the net profit margin. This is a key indicator of profitability and can help highlight issues in cash flow, management, marketing, operating costs, and other areas.
Step 6 – Adjust the Budget
No one should see a business budget as set in stone. It’s because the changing market trends, consumer demand, and other factors can influence the budget. Therefore, the final step is to make the necessary tweaks. A business budget is not static but rather a flexible estimation. By tweaking the budget, you can position your company to adapt to exterior changes. It can also help in changing goals or diverting funds towards meeting the most important objectives faster.
Final Words
Remember that having a business budget is not enough to ensure financial stability. Every business also has to set up an emergency fund with the budget as a guide. Continually revisiting the budget is a must. And failure to re-evaluate can affect the company’s financial health and lead to overspending in all the wrong places.
