There is one simple step to stop wasting money in business – setting budgets. Setting budgets is the simple way to control spend. They should be reviewed monthly and you can set them straight in your accounting software or use a spend control tool.
What is a budget? It’s a guide to all spend across a business and the simplest way to catch overspending. The sooner you set budgets, the less chance your money is misspent.
It’s easy to be relaxed about Profit and Loss when business is good, but when times get tough, it’s very important to know where your money is being spent.
We recently ran a spend report for a client and identified approximately $250,000 worth of saving opportunities per year.
Knowing where the money goes as it happens and accessing live data can make difficult savings easier to make. It can certainly make it a lot easier to make the right decision and take appropriate action.
– Things change and what used to be the right option/supplier/software in the past may no longer be the right thing. Make sure you review and replace if needed.
– Moving a business into a smaller/less expensive location may seem difficult. Yet if it’s going to make big savings to the bottom line, maybe it’s the right move.
– Take a close look at what you are spending and who you are paying for communication. With all the different software for marketing and sales, it’s easy to rack up a hefty bill when you add everything up. I recently ran an audit on all the different platforms I’d been using and saved over $1,000 a month by changing or consolidating services.
– Staff can also be a key area for savings. So many startups or SMEs don’t really have an ‘Organisational Chart’ and many employees move across roles without a solid job description. Many hires are done in a disorganised manner. Instead of throwing people at a problem, many growth related tasks can be automated through technology. Take invoice processing for instance. Instead of filling up desks with data entry folk, get a full invoice processing tool to help automate that whole process. This can drive big savings and efficiencies.
You would typically do it in a spreadsheet although there are software tools out there that will make the whole process a lot easier.
Begin by entering fixed costs for each month of the financial year, plus a total for the entire year. Fixed costs are costs you incur whether you sell anything or not. So things like rent, electricity bills, wages etc. should go in. Listing everything and using the previous year and your expectations for the coming year, enter a monthly sum for each expense item.
You now have your break-even point/ month and for the year. Break-even is what you need to sell to get a $0 result. No profit or loss here. Now you can enter an estimate of income for each month. If you have any variable costs for each sale like purchasing parts or paying for labour, enter them just below the income. Variable costs are costs you incur only when a sale is made.
Deducting variable costs from the income will give you the gross profit figure. Deducting the fixed costs from the gross profit will then give you your expected net profit figure.
As you go from month to month, you will replace the estimated figures with actuals to create a ‘Rolling Budget’. This will tell you what your yearly results will be if you meet budget in the remaining months of the year.
– Working with budgets helps you identify your break-even number and your target for each month
– Reviewing budgets regularly enables you to compare against actual performance and stop wasting money uneccesarilly. The more automated this task, the quicker you can take action.
– Working on a budget allows you to really think about what you need to spend money on and what limits your staff and the business as a whole should stick to
– Monitoring budgets helps promote responsibility across the business and you can even use them to monitor key staff performance
Mary Liz Curtin, owner of a destination lifestyle store tells The Wall Street Journal Small Business Reports: “Investing in the business wisely is important: Pay your people as well as you can, keep your inventory levels where they need to be, learn to buy for maximum margins and be sure you don’t skimp on the things that are essential to your business, but weigh each expenditure carefully and teach your staff to do the same”. See more thoughts on how to stop wasting money in your business.