How to manage expenses for your business? A guide for beginners & experts
Starting a business takes courage, determination, and money. However, even more than everything, it requires an understanding of how to make it successful. Imagine you’ve finally opened your dream business, but you’ve had to close it down after a few months because you couldn’t manage it correctly. Ah, it’s isn’t easy to even think about it.
The key to a successful business is the right planning, smart strategies, and effective money management. Yes, how well do you take the pressure of expenses that can really change the game for your business? For instance, whether or not:
- You keep your business credit account separate and be intelligent in building its Equifax credit score
- You track and record every penny that goes out of the business account and dispute any error immediately
- You keep a separate folder with all the documentation (legal, bills, taxes, payrolls), receipts (utilities, food, entertainment, maintenance), and every other expense (big or small)
So, are you doing the right tracking and expense management for your business? Let’s find out! Don’t worry. Even if you’re a beginner, you’ll become an expert after reading this guide.
Why is expense management important?
Whether you own a successful investment business or you just started your small restaurant in the market. Whether you own a credit card company or opened an insurance business recently.
The question arises: Is expense management necessary for good business performance? To answer this in one sentence, yes, it definitely is! Because if you don’t do it today, your business won’t survive and grow tomorrow. Expense management can help your business in:
- Cost reduction
- Savings to support business growth
- Helping executives and employees to understand finances
- Generating more revenue (Goal)
- Keeping one record data for all the financial analysis
How to manage expenses for your business?
It is often easy to fall short on the money when there’s no system to record spending when you are doing business. Of course, it won’t hurt your company in the short run, but it can really be destructive in the long run. So, here are a few questions every business owner should think of every day:
- Do you follow effective financial management for your business?
- Do you record all your professional expenses daily?
- Is your business generating more revenue within the budget?
- Does your business financial planning often exceed the limit?
- Does your business savings account have enough money for the future?
According to Netsuite’s research, financial management can benefit a business if done smartly. Here are some ways to help you out:
1. Budget planning
Business budget planning is similar to finance budgeting in your personal life. You calculate the total income and make a management plan by keeping the savings or emergency funds in mind.
A business money management plan is made by evaluating the expected revenue, every income source, and every possible expenditure during that time. But, of course, it is made flexible, so anything can be changed and modified depending on the situation. Here are easy steps to create a perfect business budget:
The first step includes preparation which is to set your business goals, business preferences, ideal revenue, and total expenses. Start with weekly, monthly, quarterly, or yearly planning.
For instance, if your business has separate departments, you should prepare a budget for every department and then as a whole.
Once you have decided on a budget and prepared everything to stick to it, make sure you take a follow-up from every department. Evaluation of the progress is as critical as creating a budget. If you don’t track whether or not any department lacks behind, the whole company’s budget will suffer in the end.
For instance, check the progress of every department in the monthly meeting. See if any section is facing any problem. Then, try to solve it even if you have to modify the budget plan a little for it.
The financing step includes getting help from other lenders or investors. For instance, in the evaluation step, you concluded that some departments are falling short of the budget. But you don’t have enough finances to support them anymore. So you can get investments from other companies.
But, to successfully land investment, you must ensure that good budgeting practices are followed throughout the company. For this reason, if investors come to analyze your business’s situation, they know your company is worth it.
● Budget planner
Hiring a budget planner is not a mandatory step but can really change the game for your business budget planning. Yes, you and your finance team can handle everything perfectly but hiring a professional isn’t a bad idea either.
If you can’t afford a full-time finance manager, you can always hire a part-timer. But, if nothing, then at least hire a professional at the time of the annual or quarterly meeting to let the expert analyze the situation and modify the budget accordingly.
2. Separating business accounts
Financial experts advise small businesses to keep a separate business credit card account. As per the FRBSF analysis, almost 60% of successful businesses practice budget planning and own a separate business bank account.
- Having a separate personal and business account will help your business at times of taxes.
- Then, you can claim the account payments and expenses as tax deductions.
- A separate account will also help you track your finances the right way.
- In fact, your business credit card might allow you to deal with the insufficient cash flow.
Using your personal card for business payments can put your assets in a risky situation if your business goes wrong in the future.
3. Automated expense tracking
Intelligent expense tracking can save you from any additional management stress. Therefore, the best way is to be inclined towards automated expense tracking. Get software that can help you track the expenses like receipts from retailers, payroll slips of all the staff, rental, and other bill payments.
An automated expense tracking will help you monitor everything without the chance of any trial and error.
If you’re a small business owner and can’t afford to pay for top tracking software, try using Microsoft office excel or an online google doc spreadsheet. But, ensure that there’s a proper system to track every little expense.
4. Risk management & control
The key to managing expenses for your business lies in damage control. Even if your business is skyrocketing the success mountains, you must have a backup plan or some helpful strategies for the bad times.
Be it the investment, revenue, profit, or increasing customer number. First, you must do planning for the risk factors. Some of the risk factors for businesses can be:
- Fluctuations in the local industry or foreign market
- Natural mishaps (flood, earthquake, power failure, fire sparks, etc.)
- Failed business planning and working strategies
- Withdrawal of investment and joint business partnership
- Lacking behind the latest technology and trends
- Competition among the employees (jealousy, personal fights, work overload)
Expert-tip: Click to find an interesting study on how business owners can improve the working environment in their organizations.
5. Financial literacy
Financial literacy and acknowledging the financial problems are crucial if you want to manage your business expenses like a pro. It allows you to have an expert insight on:
- How to manage the money
- How to land the investments
- How to plan the business budget without crossing the limit
- How to think of strategies for effective risk management and control
A crucial point to understand here is that having financial literacy among the top executives, team leaders, and managers won’t help your business that much. Instead, your business will only grow if even the most minor position, be it a clerk, data entry expert, or file handler knows the term’s meaning.
You can arrange seminars, find online courses, hire an instructor, do weekly meetings on financial literacy, etc.
6. Cutting back the excess
Cutting back the excess can be executed at the evaluation step. If the concluded result includes a list of every outrageous thing that exceeds your budget during the analysis, consider changing it.
Why? Because even the most minor things can make a huge difference in your final goal. Compare the analysis results and set aside what isn’t necessary to continue. Here are some working tips by Business News Daily to help you cut down the business expenses:
- Annual reevaluation of your insurance rates might be of great help
- Go a downsize on your office space (only if the generated revenue isn’t profitable anymore; look for an area with a lower rental payment)
- Divide the responsibilities equally and accordingly among staff to avoid any work overload (or staff leaving the company)
- Reduce the office supply as it might be taking a toll on your total budget (track the needs; remove the fats (boujee things))
7. Timely financial analysis
Reality might be a hell lot different from what you’ve been imagining. Yes, if you don’t do a timely analysis of your progress and shortcomings, it might become too late to do it in the future. Therefore, it’s always safer to know your lacking aspects than to learn them the hard way later.
For instance, if you monthly check the finance folder, you’ll most likely find any error immediately and will have time and energy to find the loophole. Of course, it’s more feasible than figuring out what went wrong later at the end of the year.
8. Balancing savings & expenses
There’ll always be expenses whether you are running a small business or a large corporation. However, balancing the savings and expenses will decide whether your small business will remain small or grow to become an entire massive organization.
Despite giving your absolute best, you’ll be facing some unexpected technical or personnel difficulties, so you must always be prepared to deal with them without going broke. Here are some tips:
- Start by analyzing the current numbers (decide if they match your current goal)
- Estimate the future revenue (based on current numbers)
- Practice positive cashflow and strategic expense management
- Ditch the unnecessary stuff (papers, notes, landline) and say yes to modern technology (computer, google drive, software)
- Open a savings account to add something to it during good times (profitable business days)
Before ending the guide, here are the answers to some of the commonly asked questions by you:
How does a small business manage its expenses?
If you’re a small or startup business and want to manage your expenses like a professional. Here’s what you can do:
- Use a receipt scanner to digitize the receipts
- Install a tracking software to categorize and manage your spendings
- Have a separate business credit card and business account
- Connect the software to the bank application to track and automate your transactions
How can I categorize my business expenses?
You might think every money spent is an expense. Sure, that’s correct. But, generally, expenses can be categorized into four basic sections, non-recurring, whammies, recurring, and fixed.
What are business expenses?
Small or large, a business can have multiple tiny to huge expenses. Here are some of them:
- Location rental
- Types of equipment
- Payrolls, increments, festive bonuses
- Maintenance charges
- Traditional or Social Media Marketing
- Insurance and Taxes
- Bills (Electricity, utility, gas, water)
What are the fundamentals of money management?
The principles of money and finance management can be divided into the following sections: consistency, financial decisions, punctuality, dividend decision, documentation or monitoring, investment planning, and justification.
How can I file receipts for my small business?
Although, using a software or tracking program is the best decision. But, if you can’t afford to have that yet. Remember to consistently file all the receipts in chronological order (first to the last expense or recent to older expenses) across every folder.
That’s all we had to share on how you can manage your business expenses like a pro. We’ll be adding more tips and tricks to make this guide even more helpful and comprehensive in the future. So, make sure you revisit the page to get the best help from the finance experts!