As a business, it’s important to understand how your capital is being utilized. From simple monthly expenses to major annual costs, you should be just as thoughtful about your business spend as you are with your personal finances.
Smart financial management is critical to the success of every business and, as your business grows, so too does your expense base.
To help your business maximize the value of its dollar, you should closely monitor expenses. If you’re on top of how much you spend and the reasons why, you can avoid overpaying for products and services that cut into your profits.
Or, if you’re a start up, you want that initial capital injection — whether that’s your own personal savings or a seed investment — to go as far as possible.
In this article I break down how you can control and conquer your business expenses like a budgeting ninja.
Common Business Expenses
Below you will find a list of common business expenses that should be reviewed as part of your standard business housekeeping tasks. Establishing a policy or procedure to review expenses can help you avoid what financial experts call wasteful spending.
Regardless of where your business is in its life cycle (start up, growth, or maturity), managing expenses is critical to long-term success and sustainability. While many businesses shop for competitive rates and pricing initially, they often neglect to assess these expenses once implemented. In other words, you might be paying for a less then optimal return on investment.
As part of your expense review process, you should consider the following common business expenses:
Software application subscriptions
Banking and payroll
Brick and mortar expenses:
Maintenance (e.g., HVAC, lawn care, snow removal)
These areas are the most frequent sources of wasteful spending.
As part of your expense review, you might ask yourself the following questions:
Has the level of service stayed the same? Has is it increased or decreased?
Has the price increased?
Is there a more competitive service being offered?
Is there a more budget-friendly option?
What is the market/industry rate for this service?
Will the current provider price match a competitive offer?
Is this product or service still of value to my business?
Do any of your other existing contracts offer the same service for a cheaper price?
Why Tracking Expenses is Key
While the idea of monitoring expenses seems simple, as a business grows it can become difficult as the number of expenses increase rapidly. Just like that Netflix subscription you forgot about get buried in your credit card statement, so too will small, ongoing costs for your business that chip away at your operating capital.
Something to keep in mind is that just because a business is profitable doesn’t mean it’s in good financial health. And, to play devils, advocate, the same can be said about businesses in the opposite situation. Just because a business isn’t profitable doesn’t mean they have poor financial management.
The concepts above are important pieces for any business to remain competitive within their industry and can be critical factors in their ability to operate sustainably over the long term. By developing a procedure to track and monitor expenses specifically tailored to your business you can ensure your spending maximizes the value of every dollar.
Even better perhaps, you end up nor only maximizing the value of your spending, but you also free up some of your capital to invest twice as much in areas that are critical in today’s world such as online advertising and social media marketing.
Plus, tracking expenses can help you identify areas in which you may need to re-allocate spending. Perhaps a full review of your software subscriptions makes you realize not that you’re spending too much, but that you’re spending too little in critical areas or your business operations.
What does tracking expenses look like?
It doesn’t have to be complicated. I remember sitting in my very first law school class. I was excited, nervous, but ready to get down to work. Those feelings are very similar to the ones you have as a business owner.
The one thing every professor mentioned on that first day was that you should not reinvent the wheel. If, in college, you had certain study habits, certain note taking habits and methods of memorization — they encouraged us to use all those same preferences and habits in law school.
In college, I had learned that in order for me to memorize class material, I had to be writing notes by hand. So, in law school, what did I do? Ditch my notebooks, of courses, and rely solely on my computer for taking notes and creating study resources. BIG mistake.
That lesson I learned can be applied to every aspect of our lives though, and especially when it comes to operating a business. If it ain’t broken, don’t fix it.
If you’re a solopreneur or a small business, elect a system for reviewing your business finances that has worked for you on a personal level. As a large company with employees, hold a round table with key stakeholders and decide whether Excel or some sort of expense management software is the right choice.
It doesn’t have to be fancy, expensive, or have “all the bells and whistles” — it just has to work.
Not sure where to start? Nocturnal Legal helps businesses of all sizes assess ongoing, recurring expenses and find areas in which you can save both immediately and year-over-year. After helping both small, family-owned businesses and corporate giants save millions of dollars, we know it’s not “if” we can save you money, but how much.
Let’s Think About Your Business Expenses
Stop for a moment and consider your business and how many products, services, or third-party agreements you have. Think about how those agreements have changed and evolved as your business has grown.
Can you say with 100% certainty you’re getting the best possible rate on all the services you’re paying for? Unless you’re already budgeting and reviewing expenses like you’re a tax auditor, I’m guessing your answer is no — and that’s okay.
It’s human nature to let the big picture goals sometimes prevent you from seeing the small, less obvious issues impacting the performance of your business.
Imagine your company has annual expenses of $10 Million and you identify 1% of your expenses are unnecessary, that equates to $100,000 a year. Imagine what else your business could do with an additional $100,000 or what that could mean over several years of overspending.
Even more concerning, imagine the compounding effect of 10, 20 or even 30 years in the above example. Without implementing some sort of financial management system, you risk putting yourself at a disadvantage and wasting money both now and in the future.
Common business expense are frequently overlooked and are typically the main offender when it comes to overspending. This is true no matter the size of the business and no matter what stage of the life cycle your business is in.
Sound financial management requires thoughtful organization and a relentless, ongoing review that aims to assess whether each expense is truly valuable to you, your mission, your annual goal, and your long-term vision.