Imagine juggling flaming chainsaws while riding a unicycle on a tightrope. That is what running a small business can sometimes feel like. Between serving customers, managing staff, and keeping up with the latest trends, it is easy to let monitoring high-cost expenses slip through the cracks.
But here is the truth: uncontrolled spending can quickly eat into your profits and hinder your growth. The good news? You can take charge of your finances and keep your business on track by implementing a few smart strategies.
Why Monitor High-Cost Expenses?
Think of high-cost expenses as those expenses that take the biggest bite out of your budget. The most common high-cost expenses are rent, payroll, and inventory. Marketing and utilities are also fairly common. While the specifics will vary depending on your industry, identifying and keeping an eye on these areas is crucial. After all, uncontrolled spending can lead to:
• Reduced profits: Every dollar spent unnecessarily is taken from your bottom line.
• Cash flow problems: Unforeseen expenses can make it challenging to meet your financial obligations.
• Limited growth potential: Without a clear picture of your spending habits, you can not make informed decisions about investing in your business.
How to Identify High-Cost Expenses
High-cost expenses are relative to your business size and industry. A major expense for a solopreneur could be a smaller percentage of the budget for a larger company. The key is to understand where your money goes. By conducting a quick analysis, you can determine where your money is going and identify areas that consume a significant portion of your budget.
This quick analysis involves examining your spending and organizing it into clear categories. Most accounting software and expense-tracking apps can do this automatically. By analyzing this data, you can identify areas that use a significant portion of your budget.
5 Steps to Monitoring Expenses
Now that you know what you are looking for, here are five strategies to more easily monitor your expenses.
1. Technology to the Rescue
Accounting software and platforms offer features that simplify expense management, such as automatic transaction categorization, spending reports, and budget alerts. Automating part of the process saves time and reduces accounting errors, making it easier to keep an eye on your financial health. Some software companies, like FINSYNC, have an option to get started with a free account.
2. Utilize Spreadsheets
If your budget does not yet allow for software, building a well-organized spreadsheet is a good temporary solution. Label columns for date, vendor, category (rent, payroll, or marketing), amount, and notes. Consistency is key here; you must regularly input your transactions. Later, you can create formulas to automate calculations, turning your spreadsheet into a powerful tool for manual expense tracking. P.S. If creating formulas and automating calculations seems overwhelming, remember that Google and YouTube are your friends.
3. Schedule Reviews
Commit to reviewing your expenses at regular intervals—weekly, monthly, or quarterly, based on your business’s needs. These sessions allow you to examine the data, identify high-cost areas, and compare these to your budget. Regular reviews act as an early warning system for financial issues, allowing you to be proactive.
4. Analyze and Adjust
Based on what you learned, think about ways to tighten up your spending and budget. This could mean cutting unnecessary costs like forgotten subscriptions. Or, you could negotiate better deals with suppliers. Remember, the goal is to keep your business healthy and moving steadily toward growth and profitability.
5. Conduct Periodic Audits
While regular reviews are fantastic for catching everyday spending slips, there’s another tool in your belt: audits. Whether internal or external, audits are great for spotting mistakes, overcharges, and areas where money leaks unnoticed. Regular reconciliations might miss these. Therefore, audits offer a fresh perspective on your money management, revealing opportunities to save or squeeze more efficiency out of your resources.
Monitoring for the Future
Keeping an eye on your high-cost expenses helps you understand how your business is doing financially. The more you monitor these expenses, the better information you have for making decisions about your business’s future. This means you can plan your budgets more accurately, use your resources more wisely, and invest your money in the right places.
For bigger financial decisions, a cost benefit analysis helps determine if spending money on something will pay off by bringing in more revenue than it costs. Before you make a purchase, ask yourself: will this expense earn back its cost over time? Using this strategy helps you avoid spending on things that do not add value to your business in the long run.
The Takeaway
Managing your high-cost expenses does not have to be a struggle. By using these strategies and making cost-monitoring a regular part of your routine, you will be on your way to a more financially secure and thriving business.
How FINSYNC Can Help
There are 3 primary ways FINSYNC helps business owners. (1) CO.STARTERS courses through FINSYNC can help turn your business idea or side hustle into a thriving business. (2) On our website, you can also apply for a business bank account. (3) In addition, the FINSYNC software allows you to run your business on One Platform – invoice customers, pay bills, process payroll, automate accounting, and manage cash flow. To learn more about how we can help your business start, scale, and succeed, contact us today.