Many businesses struggle with managing their expenditure. They make good sales, have high turnovers in their books but are unable to justify where the money went to. There is a tendency to make unnecessary expenses as your business scales up and this could be detrimental to the cashflow and profit of your business. High business expenditure can be attributed to high operating expenses, increasing overhead costs, lack of structure, failure to put an effective accounting system in place and many other factors. Additionally, personal habits transferred to a business can also result in spontaneous spending. You can implement the following measures to cut down on expenditure:
Develop a Financial Plan: Every business should have a monthly, quarterly and yearly financial plan that it sticks to. This is effective for keeping track on expenses and cutting down on expenditure when necessary. Some entrepreneurs may argue that such plans are too robust for their small-scale business operations. However, they fail to acknowledge that if the necessary measures are not implemented at the early stage of the business, it becomes difficult to manage finances as the business scales up.
Utilize Technology: Harnessing technology will go a long way in keeping overhead costs low and improving productivity. With the availability of different online tools for project management, accounting, online invoicing and many more, you can avoid some unnecessary expenses. The great thing is that many of these online tools have free versions, however, you may upgrade to premium versions if you require additional features.
Outsource Labour: It is advisable to outsource labour, rather than full-time hires to help reduce your fixed and overhead expenses. With full-time employees, you must consider monthly salaries, health insurance, leave allowances and other benefits that may eat into the venture’s profit. By outsourcing labour, you can access a variety of skill sets at more competitive rates, and reduce your overhead cost. It is recommended for small businesses to hire full time staff only when the position has a huge impact on daily business operations.
Review Overheads: It is important to keep tabs on all overhead expenses no matter how little they are. Some examples of expenses to review may include monthly telephone bills, utility bills, travel expenses, office supplies and many others. It is important for businesses to periodically review operating expenses and cut down where necessary.
Set a Budget: One easy way to avoid financial trouble is to create a spending limit. Setting a budget will help you curb recurrent expenditure and avoid financial distress. What this means is that after a particular threshold, subsequent expenses are pushed forward to the next month for settlement. A set budget also helps a venture to reinvest extra funds towards any unplanned or emergency expense.
Conduct Regular Audit: It is important for an organization to have auditors examine its books regularly. An audit explains the financial health of a business, provides advisory on financial plans and helps to check and highlight areas of inappropriate spending. It also helps to compute tax liabilities in line with economic regulations. Audits are not meant to indict but to support businesses, especially SMEs.
A careful consideration of these steps will help a business better manage its expenditure and increase control over its finances.
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