We’re sure we hear this same scream from business owners across the country every day. “I had no idea we were spending money on this.” Or, “Why am I getting a bill for this?” Has this happened to you? It probably has at one point.
There always seems to be some type of bill that pops into our inbox that surprises us from time to time. Maybe we signed up for a service or it was a yearly subscription that we just forgot about until the next years’ bill came to us. Whatever it is, we just seem to lose sight of what we spend money on in our businesses from time to time. And it can add up.
If we don’t analyze our business expenses on a regular basis, things like this can pop up unexpectedly and in some cases, throw our budgets out of line.
How to take control of your business expenses:
Budget: This first thing your business needs is a budget. For some of you, I know that seems like accounting 101 and you might be wondering why we even mention it. Well, for many businesses, they have no budget. If you are that business, it’s time to sit down and get it done. Your budget can be the backbone of your company. If you are just starting out, even a simple budget is better than nothing. If you are in the consulting business, maybe your numbers are very simple. Consulting fees and then some minor expenses such as office rent, utilities, meeting expenses and so on. But for other types of businesses, maybe you have payroll, inventory, multiple insurance policies, other services that you use for your business and taxable items that you need to account for. The more complicated your business is, the more you need a detailed budget.
You also need to get the necessary help you need. If you are not quite there yet in size to be able to hire a CFO or staff accountant, you need to outsource that task and get some assistance. Budgeting can be done by a qualified bookkeeper. Working with you and your CPA, you should be able to set up your accounts, layout all your expenses and get a clear view of your business.
Actuals: We are not accountants here at American Profit Recovery. We are a collection agency. But here’s what we know about actuals. And its fairly self-explanatory. Your budget is what you think you will have and plan for in revenue and expenses. Your actuals are what you “actually” brought in and spent. And you must pay attention to both. Because they will always differ. Make it a point to always review your actual expenses. The budget is important but real-time numbers are even better at telling the story of your business. If you’re unsure of how to review these, ask your bookkeeper or CPA.
Expense Reports: We can’t tell you how many times we hear business owners telling us that a staff member dropped 6-8 months of receipts on their desk and wanted an expense check. But don’t beat yourself up because you didn’t ask. It’s not your job to ask. It’s the employee’s job to present those to you in a timely manner. That being said, reinforce your policy for getting expense reports to the proper person on time.
Receivables: Guess what. Money not in the bank is costing you more money. By having customers that have not paid you on time, you are losing money. You are losing money on the resources that you need to have done that debt and it’s money that could be working for you in other ways. You have to pay staff to either make calls or send out reminders such as statements. And that is time that could be spent doing much more profitable things for your business.
Variable vs. Fixed: We talked about actuals above and this somewhat relates to that. If you have been keeping an eye on your business for any length of time, then you know that you have different kinds of expenses; fixed and variable. Fixed expenses include your rent, loans you might be paying off, insurance, utilities and others that are pretty much the same each month. Then you have variable expenses that fluctuate each month. Those can be shipping expenses, cost of goods sold, food costs if you in the food business and travel expenses. It is very important to keep an eye on those variable expenses because you can lose sight of these very quickly.
Taking time to make sure you understand these will give you a much better snapshot of where your money is going as well as when you need to make crucial adjustments in expenses. You don’t want to get to the end of the year and realize that you have spent far more than you budgeted for in items such as good for sale, shipping, employee expenses and other items.
Take time each month to give yourself a complete view of your business.