Any business, large or small, has many different types of expenses during the year. Some may be one-time purchases of equipment. Or, they could be recurring monthly or annual charges for things like rent, insurance, business software, etc.
If you’re considering small business growth in the near future, or even if you’re just looking to maximize your profits and cut back on wasteful spending, it may be wise to look at your budget and audit your expenses.
Auditing expenses in a small business budget requires looking at every expense, line by line, and determining your return on every dollar spent. Auditing expenses allows business owners to determine which expenses can be cut or scaled back without sacrificing revenue.
Are You Wasting Money?
There are many expenses that are vital to operating a small business and cannot be cut from the budget or scaled back. However, there may be some services and products that small businesses are overpaying for. Some examples include:
- Advertising: There are many cases where a business needs to advertise just to be known to the public. There are other cases, though, where a mature business has all they can handle and cannot grow anymore without making drastic business or service changes. A business that is well-known and has been in the area for a long time may be able to scale back their advertising budget without sacrificing revenue.
- Continuing Education: Continuing to train employees is important because the more a business owner puts into them, the more the employees are going to put into the company. If you have a mature employee base that knows their stuff and doesn’t need further training, this is another area of the budget a business could potentially scale back.
- Insurance: This is one of those expenses that a business cannot avoid, but it is healthy practice to shop insurance rates once a year to make sure you are getting the best price. If a better price with the same level of coverage is available, this is a way to scale back the budget without sacrificing revenue.
- Technology Expenses: Most businesses rely on a solid internet connection for running their business. So, in many cases, internet is not an expense they can cut altogether. Business owners may be able to consider their price point, however, and scale back if they are paying for services they don’t need. Also, business owners can look at their software subscriptions. Look at how much it costs and how much it improves your business to determine the value of the investment.
Optimizing Your Budget for Small Business Growth
In many cases, growing a business means hiring additional employees. Look at which expenses you have control over and which expenses are variable. For example, hiring an additional employee will probably not change the amount you pay for rent, but it will affect how much you pay for pension, uniforms, payroll and insurance.
Before hiring an additional employee, make sure that the additional revenue will exceed the additional cost of that hire.
How and When to Audit Expenses
Typically, the best time to audit expenses is after the first of the year, along with when you are preparing your taxes. Get your accountant, your banker and any high-ranking, trustworthy managers from your business involved in the process.
Once your taxes are done, ask your accountant for a profit and loss statement. You and your managers can look at expenses line by line to see where every dollar went throughout the year.
A business banker at Northwest Bank can look at those expenses with you and help you decide what kind of return you are getting on those investments and may be able offer advice about where you can scale back. If you are planning on spending money, for example, on new equipment for your business this year, we can objectively walk you through the true cost, including maintenance and hiring an employee to operate the equipment to help you make the best decision.
Contact a business banker today to learn more.
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