One area where a small business has to keep a very close eye is that of expenses. It’s so easy to ruin your company’s bottom line by not monitoring how much you spend in different areas of your business. When margins are tight—as they so often are in a small business—spending too much can cripple not just your growth, but your entire venture.
This isn’t to say you should immediately cut out all expenses that aren’t completely necessary. Instead, take some time to audit your expenses. Identify where you’re potentially overspending and evaluate how you could do things differently. You don’t need to have all the bells and whistles, and you don’t need to have just the bare minimum. It’s one of the most challenging business lessons to learn.
Let’s look at where many small businesses regularly end up spending too much so you can avoid making the same mistakes:
- Your Office
It’s natural to want a well designed and decorated office that makes your business look professional. However, this isn’t usually the best use of your money, especially if you aren’t meeting with clients or need somewhere for customers to come into regularly. It takes time and significant investment to build an office that looks good enough to be in a magazine.
While you work your way up to that, you can find other ways to impress clients and give off the right professional atmosphere. There are so many places now that offer daily or even hourly rentals of boardrooms and office space. You can hold your meetings in these spaces while your employees work from home or in a less impressive space at a lower-cost address.
- Your Advertising
Advertising your business is obviously a necessity if you want to keep it alive and build it up. However, when you don’t have a lot of income, you need to be exceptionally careful about how you spend your advertising budget.
It’s easy to get caught up in a marketing idea and run with it because that’s what conventional wisdom says you should do. Instead, take some time to see which advertising avenues provide a solid return on investment (ROI) for your business and focus on spending your budget there.
Start by assessing where your audience is and how they’re familiar with interacting with brands. There’s no point in spending time, money, and effort on an Instagram or Twitter account if your target market isn’t using these platforms.
Even if they are, consider if they’re likely to be interested in your business on those platforms. Instead, you may be better off with some targeted display ads or going offline and doing flyer drops in relevant neighborhoods. It’s all about what will work for your business.
- Your Telecommunications
Connectivity is another essential tool for doing business. Phone lines, an internet connection, and the equipment that goes with it are vital. However, there are often cheaper ways to connect than traditional methods.
For example, a VoIP setup for your phones is usually more cost-effective than a traditional landline and mobile plan. You can get the phone number you need, an answering service, and even forwarding to different devices throughout the internet. It’s a professional telecoms solution without a huge price tag.
- Your Software
It’s easy to get bogged down in heavy software costs, especially with so many high-end options available on a subscription basis. There are productivity programs, project management systems, inventory solutions, communication apps, and so much more. Some of these tools are critical to running your business, while others are just nice to have.
The problem is, you don’t always realize how much you’re spending on software because the subscriptions are all reasonably innocuous on their own. However, when you add them up, you can see where a considerable portion of your income goes every month or every year.
Look at what’s necessary and what’s superfluous. Accounting software and invoice templates are essential, but you may well find that you have several communication or collaboration platforms that you don’t need. Streamlining your software needs can reduce costs, and you may well find it increases productivity too.
- Your Employees
It’s tough to say, but small businesses can easily spend far too much on employees and labor. This can result from a few different factors, but it’s usually linked to trying to grow the business. You hire too many people too quickly, and there isn’t enough work and income to justify the employees.
It’s great to have people that are dedicated to certain functions or departments in the business. An IT person, an accountant, and maybe even a team for marketing can make your business run far more efficiently. However, you need to consider if the business can justify having those dedicated individuals on staff permanently.
Perhaps you can have specialists working for you part time or on a contract basis. Outsourcing specific tasks will take a lot of the pressure off your finances while ensuring you still have the experts on hand to do the work.
- Your Equipment
Finding the right balance between having the equipment you need to operate and not over-extending your budget to make minor unnecessary improvements is crucial for a small business. Of course, we all want to have the latest technology and equipment in the office, but this is expensive and typically unnecessary. You don’t need to have the latest device each time something new is released.
Instead, take the time to weigh up which devices or equipment are working well and which ones could do with fixing or replacing. Scrutinize things to ensure that you’re balancing efficiency in the workplace with your budget for new technology. If the latest release truly makes a big difference to productivity, it might be worth spending a little extra. But only if your budget allows for it.
Keep On Calculating…
In every small business, some expenses are unnecessary or have stacked up out of habit. The key to avoiding common areas of overspending is to assess and reassess your financials continually.
If you know where every dollar is going, you’ll find it easier to cut back and save on the unnecessary expenses that dent your bottom line.
