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Whether you’re going into business with your eyes wide open or kicking and screaming about the parts you don’t like, expense management is essential to keeping the lights on and creditors (and the tax man) at bay.
Not being able to manage your spending can result in you continually spending on unnecessary subscriptions that renew automatically. At the end of the month, you may run out of funds and have to carry credit card balances with high interest rates. Or you might end up with taxes you can’t pay and the IRS will be knocking on your door.
Adjusting expenses is at the heart of expense management. Simply put, reconciliation means compare two things Make sure they match. For example, compare the receipt for the computer you purchased with the credit card statement for the card used for the transaction. Or your credit card statement and the bank account statement you used to pay your card balance. Doing this will help you understand what’s happening with your cash flow.
Avoid the bad ones. You can identify things that can cost you dearly, such as fraud or identity theft, or catch small mathematical errors before they become major ones. Your bills are less likely to get lost. You’re less likely to pay late fees. You can reimburse your employees before they take a financial hit or develop a grudge against you. You are less likely to face unexpected expenses. Also, because one of the major expenses is paying his estimated taxes to the IRS, there is less chance of penalties for underpaying or delaying estimated taxes.
Embrace the good. With up-to-date and accurate expense records, you can make better decisions on everything from hiring to new products to vacation time. You may discover money you didn’t think you had. This means you can pay down debt or set aside funds for future business growth. If you’re looking to borrow to grow or cover off-season expenses, keeping good records of your expenses will make the process go smoothly.
Related: Don’t file, don’t forget: Use receipts to gain insight into your business spending
Adopt these five strategies to move from “surviving” to “thriving.”
Managing expenses is especially important for small businesses. Imagine a baker who doesn’t know what they’re spending on flour, or a freelance web designer who has more professional memberships than time spent on them. Managing expenses is more difficult for small businesses. Staff numbers are usually small, so everyone is strained. Distractions are greater and space, both real and cyber, is restricted, making it easier to lose things.
These five expense management strategies will keep you on track and help you overcome challenges.
1. Budgeting
Budgeting is central to expense management. Budgeting sets guardrails for how your business should run. Compare (adjust) your spending goals to your actual spending in important categories to keep your business’ financial health up to date. These vary depending on your business, but can include things like rent, supplies, employee expenses, and utilities. Compare your spending and budgeted amounts for a specific time period (monthly, quarterly, etc.).
The easiest way to do this is to list your budget items on the left side of your notes page or spreadsheet and enter your actual expenses on the right side. Add a third column that shows the difference between budgeted and actual spending from cash receipts, credit card statements, and check statements. Prioritize which categories are most important. Necessities such as coffee and sugar in a coffee shop require even more attention than nice-to-have items such as a television for customers.
2. Identify cost centers
Expenses may be important because they are large in amount (such as rent) or because they are essential to performing the job (such as Internet bills for a programmer or web developer). Marketing can be important because while it creates customers, it can easily spin out of control if your strategy includes pay-per-click or pay-per-impression Internet advertising. Cost centers can indicate a spending problem if the difference from normal spending is too large, or it can indicate that your business is growing or starting to decline. By tracking your expenses and how they are spent, Return on investment (ROI), you can identify products and processes within your company that are not profitable. You may choose to reverse this trend if your marketing ROI is too low. self-service purchaser Drive sales through online experiences with fewer salespeople.
3. Outsourcing
Administrative tasks that you pay someone to do may be better outsourced online. These can include payroll, data entry, bookkeeping, web design, marketing, call centers, and even human relations (HR). Or you can try handling them yourself using a Software-as-a-Service (SaaS) vendor. Start with your biggest expense, but anything that increases profitability should be considered.
4. Establishment of administrative procedures
Once you decide on a course of action, you need to make it a routine. If you are a sole proprietor, write down what you need to do and do it. It might even be helpful to pretend you’re reporting to someone else (even if you started the business to be your own boss). consider “Responsible partner“Who will keep the job going? If you have employees, document the steps. Include when they will be completed. For example, Tuesday is payroll day, Thursday is inventory day. Who will do it?” We’ll explain every step in detail, including what to do.
5. Make technology your friend
According to the U.S. Chamber of Commerce Technology Engagement Center, since 2020, small businesses have increased their use of technology. showed higher growth in sales, profits, and employment. When implementing helpful technology, keep his first four strategies in mind.
Related: 10 Tax Law Changes You Should Know to Save Your Business Thousands of Dollars
complete mastery
For an expense management structure to work, transactions must be accurately recorded. Audit what you’re doing and fix it if the above steps don’t work or if there are changes.Whether through growth, loss of business, or complete disaster, things can change. intention change. These impact all of the above and require new budgets, cost center decisions, outsourcing needs, paperwork and technology.
Your persistence will pay off when you implement these five strategies first. Systematically reducing costs, especially those that do not help generate revenue, increases profitability. The process may be slow and full of failures, whether you make the wrong outsourcing decision or take the time to turn Wednesday into bookkeeping day, but if you keep your eyes on the goal, you’ll quickly find yourself You will find that you can master everything that is managed.