Do you do this – you keep an eye on your invoicing each month and use this to gauge how well your business is going?
Income is only one piece of the puzzle – you may be bringing in plenty of money, but if it’s going out the door just as quick then you’re at risk of running your business into the ground.
Monitoring business expenditure isn’t as glamourous as finding ways to increase income. But if you want to take control of your finances and maximise profits, then it has to be done.
Where to start
First, you need to have your data entry up to date. This is a basic pre-requisite for being in control of your business finances.
Secondly, ensure you have a copy of your Profit & Loss report as soon as all data entry is up to date. You’ll be able to see what expenses you’ve incurred over a certain time period. For example, for the month of April. Or for the January-March quarter.
Common areas of overspending
Rent
Is your current office/warehouse/retail space still suitable – are you utilising the location and the space that you have? Can you downsize or move to a more affordable area? Can you lease out part of the space that you aren’t using?
Staff
Instead of hiring permanent staff, can you “batch” tasks and outsource them to a contractor as 1 short-term project? The hourly rate you pay your staff is just the tip of the ice-berg. You’re also paying their superannuation and workcover – as well as training, amenities, equipment, uniforms, registrations etc.The cost to advertise for staff or use recruitment agencies can also be significant.
Not to mention that many subscriptions are pay-per-user (another way your subscription expenses could be spiralling out of control).
Insurance & utility bills
Use an online comparison tool, pick up the phone and phone 3 other suppliers, or ask other business owners who they use. You can also ask your existing providers if they can do a better deal for you.
Subscriptions
What automatic direct debits are coming out of your bank account for subscriptions? Ask yourself: 1) do we still need this subscription and 2) are we still on the right subscription level for our business at the moment. For example, you may be paying for the Ultimate 10 Xero subscription, but you now only have 5 employees, so you should be dropping back down a level. You can bump the Xero subscription up again at any time if you need to.
Marketing & advertising
Are you throwing money at advertising without knowing whether you’re getting any return on investment? You may be spending money in a marketplace where your target market are not in fact hanging out. Are you spending money on certain services or social media platforms because “you think you should”.
Restaurant meals and drinks with staff, customers or suppliers
Can you bring these meetings on-site at your premises to keep the cost down? You may also be increasing the likelihood of it being a tax deductible business expense by it being on your premises within business hours.
Tax
Schedule an appointment with your accountant before the end of the financial year to discuss tax saving strategies. Don’t forget – they will need up to date financials.
Taking it further
Preparing a Budget is a great way to plan ahead, reduce risk and set goals. Once you’re comfortable with analysing your expenses, you may find that preparing a Budget for your business comes quite easily. Xero has a simple budgeting tool. Or you may prefer to use a spreadsheet or additional software.
Getting familiar with your Balance Sheet can be helpful as well – this will indicate other places your money is going besides expenses. For example, director’s loans/owners drawings, loan repayments and ATO debts (such as BAS payment plans).
Conclusion
Controlling expenses is an important step in taking control of your business finances.
Up to date data will mean you can make the necessary decisions that lead to reduced costs and increased profits.
Make checking your expenses a regular activity – block out your calendar and get it done. Start with only 1 or 2 expenses so as not to make the task overwhelming. You’ll soon get quicker at it and it should be less and less work each time.
If you have a bookkeeper then you won’t have to do this all on your own. They see your figures on a regular basis and are familiar with the ins and outs of your business finances already. They’ll keep your data up to date for you and can provide you with the reports you need on a regular basis – largely automating the task for you. Discuss your areas of concern and work together to lighten the load.
About us:
Festival Bookkeeping are a team of Xero advisers and bookkeepers located in Adelaide, South Australia. We help busy business owners and their teams Australia-wide. You can contact us on 0421 501 887 or sarina@festivalbookkeeping.com.au
Learn more about our bookkeeping services here: https://festivalbookkeeping.com.au/services/xero-bookkeeping-packages/
Looking for more helpful articles about bookkeeping and accounting? Try https://festivalbookkeeping.com.au/xero-payroll-4-common-mistakes and https://festivalbookkeeping.com.au/8-different-ways-to-bundle-your-services/
Read what our happy clients have to say here: https://festivalbookkeeping.com.au/testimonials/
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