Tracking business expenses is not always the first thing on your mind while running day-to-day operations. However, a simple review of your Profit & Loss statement can uncover a few ways you may be wasting money. Some are easily found, others may disguise themselves as “necessary” expenses:
1) Credit card interest and late fees.
The number one on my list is always paying interest and late fees on your credit card debt. While it may be necessary to finance your operations during certain stages, most business owners are simply unaware of how much money they waste on interest. To make matters worse, most also incur late fees, which could be easily avoided by making payments on time.
2) Hiring instead of outsourcing.
There are good reasons why outsourcing today is more beneficial than hiring staff. Hiring is a big and expensive commitment and should be approached carefully. In today’s gig economy, it is usually more cost-effective to outsource a project, whether it’s a one-time job or a monthly set of tasks. When you outsource, you avoid costly payroll taxes and insurance. In addition, you are more likely to deal with a professional who knows what they are doing. Let’s admit, when we hire in-house staff, they tend to wear too many hats, whether they are qualified to do the job or not. This ends up costing you more in fixing mistakes than it would have cost you to outsource the job to a professional.
3) Unnecessary office space.
Rent is often one of the biggest expenses you will carry, so it’s worth giving it a second thought. Do you really need all that square footage or do you really need a fancy downtown office? Many successful businesses started out in a garage or on a kitchen table. Does having a physical location bring you new customers/clients? Do you have a team that can not operate remotely? If you do, then by all means invest in a reasonable office space. The main question to ask yourself is whether you are getting return on your investment (ROI).
4) Over-spending on travel and trade shows.
Just like rent, travel and trade shows may seem like completely necessary expenses in growing your business. However, business owners often get carried away with trade shows, spending thousands in just participation fees, adding thousands in travel, without tracking return and profitability. You should start by analyzing how many new clients or at least good leads you acquired during a show and how much those clients might be worth.
5) Non-measurable marketing.
Now this one can be tough because how do we grow without spending some marketing dollars? Word-of-mouth does not work for everyone any more. And with market being so saturated, you have to find ways to stand out. Social media used to be free, but these days you have to pay for everything. The only way to know whether you are wasting your marketing budget is to stick with measurable campaigns. You may try a few until you find the one that works for your business. But if you don’t measure your results, you may be stuck with a campaign that is a drain on your budget and brings no new business.
While some of these expenses require a more analytical approach, truth is a lot of unnecessary expenses are right on the surface. A good way to avoid wasting money is to review your Profit & Loss statement at least monthly. You don’t have to be an accountant or even a bookkeeper. Reading a Profit & Loss statement is fairly easy. The next level is to create a budget and stick with it. Reviewing your Profit & Loss against your monthly budget will do wonders in increasing your bottom line.