If a company’s goal is to increase profits, the answer isn’t always “increase revenue.” Instead, maybe your expenses are the real barrier between you and greater profitability. Often, business owners think, “If I could just make more money, then I could cover all the costs and finally increase my profit margin.” In reality, you might be able to reach that goal more quickly simply by managing a budget and reducing expenses.
This year, move past resolutions and goals. Instead, commit to a business budget that’s framed by financial discipline. Here are some strategies to help you reach your profit goals through better expense management.
1. Leverage business credit card tools to help improve expense tracking.
Business credit cards provide an end-of-year summary that is segmented by categories similar to those in your business budget. For example, categories may include travel, meals, equipment, transportation, supplies and services. Credit cards may also offer monthly statement summary reports. If you use a particular business credit card for the majority of your expenses, you can break down expenses and check them against your budget.
In managing a budget, the available expense reports are often an underutilized treasure trove of valuable budgetary information. You can review them to the prior year’s report and use the comparison in preparing your budgets or trimming expenditures. Then review your financial statements (the ones prepared for tax season to assess your annual profitability). This will help you see how those categories impacted your bottom line.
2. Reinforce expense tracking with apps.
You may make business purchases through other means besides your business credit cards, such as debit cards, checks, automatic payments and cash. Consequently, you may also want to use apps that track and analyze expenditures based on the expense category.
By sticking to your budget, you’ll help improve your cash flow, enabling you to save for larger purchases that will open your business to expansion opportunities.
These apps work by connecting to your financial accounts, such as banks and payment cards. Then the apps record what you spend and update you on all purchases made across all connected accounts. This allows you to keep a closer eye on your business expenses and check actual numbers against your business budget. Some apps may also suggest ways to improve your spending habits, which can help you stick to the budget.
3. Conduct an expense audit to identify areas of waste in your budget.
Use your existing expense reports to gain clarity about where and how your money is spent. Some expenses such as rent, loan payments and employee costs are essential, of course. But others may need to be called out for what they are: waste.
Wasteful spending is anything that you could otherwise avoid with careful planning and better cash-flow management. By keeping a closer eye on your spending and conducting regular expense audits, you can avoid late fees, penalties, interest on existing credit balances, manual processes and misuse of supplies.
Your expense audit will tell you where to start making changes. Take each wasteful cost that you’ve identified. Analyze it individually to understand why it’s happening and how it is impacting your profitability.
Once you assess what has led to this wasteful cost, then you can formulate a strategy to stop it from happening in the future. For example, replacing manual processes such as invoicing with digital tools helps to save money on stamps, envelopes, paper and labor. Scheduling as many payments as possible means you’ll avoid late penalties. And paying down loans and credit card balances faster helps you avoid excessive interest payments.
4. Prioritize profitability by eliminating unnecessary expenses in your budget.
Now comes one of the toughest parts of managing a budget. Let go of those “nice to have” (or just plain unnecessary) things your business really doesn’t need. Carving out more profitability or saving for slower periods is always a commendable goal. So, trimming the fat regularly is important.
Many non-vital expenses go unnoticed because you are so busy, including software subscriptions you no longer use. This is an opportune time to review any potential software changes that could save money. Also look at new apps that cost less than what you pay now.
Look at what the office is spending on food, supplies and perks. Instead of daily donuts and bagels, consider switching to a healthy snack service that delivers once a week. Consider canceling magazine subscriptions and paring down paper supplies, especially if you’re already focused on digitally transforming your company.
That being said, it’s never fun to strip all the joy out of your life based on cost. The same goes for your employees. With all that hard work, you still need a break to enjoy a bit of downtime. So, instead of wiping out all unnecessary expenses in this category, perhaps start by eliminating a few and then examine how this gets you closer to meeting your budget goals.
Building Business Momentum
The purpose of making these fiscal changes is not to deprive yourself. Rather, the purpose is to build your business momentum through fiscal discipline. It’ll help improve your cash flow, letting you save for larger purchases. In turn, that will open your business to expansion opportunities.
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