As a small business owner, it’s crucial that you manage your expenses well. In fact, Fundera found that 20% of all small businesses fail within the first year, so it’s vital that you develop good money management habits right from the very beginning. Small businesses tend to have smaller profit margins, so it’s essential to keep careful control of your costs. Here are five easy tips on how to better manage your expenses so that you can maximise your margins.
1. Start Immediately
The majority of businesses incur costs before they officially launch. It’s important to keep a careful track of your expenses before you even open your doors, be they virtual or physical. Even the smallest costs can really add up over time! No business owner wants to pay more tax than strictly necessary, so set yourself in good stead by carefully recording your expenses right from day one.
2. Open a Separate Business Bank Account
Opening a separate business bank account makes it infinitely easier to keep track of your spending because it avoids the risk of confusing business and personal transactions. You cannot claim personal expenses as business costs, and such a mistake on your tax return could result in a significant penalty. Furthermore, having a separate business account ensures that you won’t overlook any transactions and end up paying more tax than you should.
3. Use Accounting Software
Online accounting software makes it easier to manage your spending. Many programs allow you to upload pictures of your receipts and invoices and then organise them accordingly. This will save you a lot of time and prevent you having to manage a mammoth backlog of records all at once.
Furthermore, accounting software will provide you with a clear picture of your spending and even allow you to understand which costs generate the most significant return on investment. This is actionable data that will allow you to cut costs where necessary and focus more on profit-generating activities.
4. Create a Clear Budget
Creating a realistic business budget that you can actually stick to is an important step in managing your expenditure. You will then be able to monitor your performance against this budget and adjust it when necessary.
In order to create a realistic business budget, you must first calculate your income, then determine your costs and work out your profit from these figures. This will tell you how much you can afford to spend and allow you to set a cap on your expenditure. Be sure to review and update your business budget regularly; an outdated budget is of no use to anyone.
5. Take the ‘Little and Often’ Approach
Let’s be honest: as a small business owner, bookkeeping is unlikely to be your favourite task. Treat it like a household chore and take the ‘little and often’ approach. Spend a little time each day or week to record your expenses and measure them against your business budget. This will give you an accurate idea of what you’re spending right now and allow you to fix any potential problems before they spiral out of control.
Conscientiousness is the key to prudent expense management as a small business owner. By being proactive about bookkeeping from the very beginning of your business, you will find it much easier to manage your spending. A clear understanding of where your money is going is crucial if you want to cut costs. Furthermore, by creating a realistic business budget, you effectively devise a roadmap for spending that will make it far easier to make smart decisions when it comes to expenses.