Managing business expenses is a challenge for most entrepreneurs especially when they are just starting out. While spending cannot be avoided, you can always make wise decisions and create strategies to manage your finances well and make operating and managing your business a lot easier.
Here are some useful tips for new entrepreneurs on how to manage small business expenses:
Create an Organized System
Keep records however possible. You do not need a fancy cataloging system to manage your records and help you stay organized and efficient. A simple spreadsheet in Microsoft Excel can effectively keep track of your business expenses, profit, and cash flow. This is essential especially throughout the first stages of establishing the business. Create reports every week to monitor both your expenses and revenue. Make the neccessary adjustments, especially if you notice that your spendings are exceeding your budget allocations. Keep all receipts and paperwork related to those records to help you remember what your payments were for. And if ever your business is audited, you can have them ready.
Review Every Expense
Learn to manage your business in such a way that you know where all your money is going just as much as you know where it is coming from. Begin by keeping track of every small financial detail of your business to determine if you are incurring any losses, breaking even or just barely making revenue. If you are spending too much, it may make sense to trim enough costs to counterbalance those losses. By recording and checking your expenses regularly, you will be able to clearly identify your expenditures, no matter how small, and determine which things you can do without. Do not hesitate to cut items that do not directly contribute to your business. You can review some areas to consider below:
- Space. When starting out your business, keep things simple and consolidate your operations to save on office space. Consider either leasing or subleasing any unused office space. If the rent is cutting too much on your profit, renegotiate the lease terms; if not, move to a more affordable location.
- Energy. Just as you try to save energy at home, examine your energy costs in your business and find ways to reduce expenses. Turn lights and equipments off when not in use or use motion sensors or automatic timers for lighting or adjusting your thermostat settings. You can also change all your incandescent lightings to energy-efficient bulbs.
- Inventory. There is such a thing as inventory management, and it does not only involve keeping a list of what is in stock, but finding ways to add value to the business as well through better use of an asset that has already been paid for. An effective inventory management will enable you to trim your inventory levels while still being able to fulfill the demands of the buying market. This means that you should successfully determine which items are not selling as fast as the other products. Prioritize placing bulk orders for faster moving products, or those with committed orders, and consider discounting products with slow turnover.
- Vendors. Contact other small business owners, partners or associates, to ask if they will find it beneficial to share the expense of certain items to obtain discounts on high quantity orders. Remind suppliers you’ve had a good business relationship with that you’ve been consistently committed to prompt payment. Then negotiate with them whether or not they can give an extra discount and/or lengthen payment terms.
- Staff. Be sure to keep track of all payments made to your employees. If a staff leaves, keep the position unfilled for awhile and either split the work among other staff members or enlist the help of interns, part-timers, temporary or consulting services.
- Office supplies. When getting your office supplies, look for big savings and consider those that do the job without the extra trimmings that add to the cost, like unnecessary packaging. Going green will also help you save a significant amount of money by reducing costly carbon footprint, such as paper, with eco-friendly alternatives such as the efficient use of email. Quality should not also be compromised.
- Office Furniture and Equipments. Buy your office equipment in bulk to take advantage of wholesale prices. Don’t buy equipment that is cheap and low in quality. If you can, buy slightly used items or those that are on sale. Recycle or sell machines that you use only occasionally. You can also borrow or rent equipments and software only when the business needs it. If you still feel the need to buy something new, you can always find quality items at lower prices.
- Subscriptions and Services. Evaluate the needs of your business and cancel unnecessary subscriptions and services. For instance, if your business is not dependent on newspapers, one subscription would suffice. You can get most of the information that you need on the Internet anyway. Downgrade your Internet subscription if you really don’t need that much bandwidth. And consider cutting some you land phone if you are always on the go and using your mobile.
- Marketing. Try to market your business first through word of mouth. Talk about your business, and take advantage of the Internet technology. There are various of social media and online community where you can effectively encourage people to spread the news about your business. Always try manual advertising first. When you do use paid services, keep track of those that are effective and lose the others. And if you need to travel for networking purposes, trim the luxuries. Flying in economy class will still get you to the same place.
And Don’t Forget To Examine Your Business Revenue
The profit from your business can counter the expenses that it makes. If you see any shortcomings in your revenue, immediately find solutions, and try to replicate successes in the past. Work with every customer no matter how small the business they provide, as long as the work that you provide for them generates a profit without much stress or problems. Speed up your collections of receivables and control the credit and terms. Look for a strong bank which could safely keep your deposits and/or invest your money in other things.