“This is one small step for man, a giant leap for mankind”, is the famous quote by Neil Armstrong after he stepped on the moon’s soil. Business and landing on the moon have seemingly no connection but the feeling of accomplishment might be similar. It is one person’s crazy thought or creative idea that turned into a start-up or a small business. The normal path taken for the fruition of that dream is to get the seed money from bank loans or venture capitalists. Then comes the real and difficult part of sustaining and growing the business. One obvious solution to having a positive impact on the bottom line is to identify ways to increase the sales and decrease the expense. To find practical ideas on controlling the business expenses, we need to first have a clear understanding of what it really comprises.
What are Business expenses?
Expense is the cost incurred on something which is already utilized. So, business expenses are costs incurred on operating or running of the business. These costs can be broadly divided into fixed and variable. Fixed costs include rent of the premises, depreciation, insurance, etc. They are not directly impacted by the sales of the business. The variable costs include advertisement charges, commissions, travel expenses, etc. They are directly related to the sales of the business.
The expenses are unavoidable but controllable. Lowering your expenses will increase the net profit of the business. There are no specific ways or instant formulas to control the expenses. Common sense and the ability to think outside the box are two desirable characteristics for an enterprising business person.
Action plan to identify and control unnecessary business expenses
Every business is unique in its own way and so are its expenses. There is no single quick fix that is suitable for all businesses. Some or a combination of the below-mentioned action plans should help the business control its unwanted expenses.
Budget the business expenses
As simple as it sounds, it provides a strong foundation to control the business expenses.
Keep a separate account for business expenses
Combining personal and business expenses will make the tracking process difficult and in turn, complicate the auditing and budgeting process as well. So, it is prudent to separate the personal expenses from the business expenses.
A thorough review of every expense
It is advised to make entries for all the expenses, however small it is, on the personal front as well as in the business. These entries need to be checked with a fine-tooth comb to identify avoidable expenses. This will also help in understanding whether the working capital budget is adhered with.
A thorough check on recurring bills
A check on all the recurring bills like power, general stationery, travel etc will help to understand the wastage of any of these and thus, suggest necessary steps to avoid the wastage.
Proper check on the return on investments
Heard about the man who wanted to own a second-hand premium car and got a deal on one, but never got to enjoy the ride as one or the other parts failed every time. An expert check would have kept him off this deal. The same applies to business investments. Expert check, period.
Need vs Want decisions
Every cost to business must face the crucial question of whether it is needed or wanted. This will simplify the decision-making process and control unwanted expenses.
This comes with a high initial cost, but the running expenses will be subsequently lower. Additionally, it is environmentally friendly.
Outsourcing certain jobs will reduce payroll expenses. The office space can be reduced and hence decrease the fixed costs of the business as well.
The idea is to pay for the work done rather than for the time spent in the office. Identify the jobs that can be done equally or more efficiently through freelancing at a fair work rate. This will reduce the running cost of the office considerably.
Efficient usage of time
In the business world, time is money. Lately, because of the pandemic, business meetings are virtually conducted. A recent study showed, that such changes have increased the efficiency of the employees. This in turn increases the productivity and profitability of the business.
Review miscellaneous expenses
Miscellaneous expenses are provided to meet any unforeseen circumstances. Any miscellaneous expenses need to be reviewed to understand these circumstances and to avoid the same, if possible.
Sharing the advertisement expense with another company through collaboration in sponsoring a social event will bring down the expense but increase the reach. Such innovative and creative ideas need to be pursued to bring down the advertisement expenses.
The clarity in communication of commissions and bonuses
Sales commissions and bonuses motivate the employees to do better, but there has to be a clear understanding of the tariffs between the employer and the employee.
It is the duty of a good financial services provider like Diligen to inculcate good practices in their clients. The financial service providers will be experts in bookkeeping and working capital management. They will be prompt in sending the daily MIS report which will help to identify the weaknesses of the business. These may as well be rectified by the suggestions to improve the working style and culture of the business.