Expenses 101 – How To Manage and Minimise
There are expenses and there are expenses. What I mean by that is that there are different types of expenses and each type needs to be managed and minimised differently.
These are the expenses that you have to pay to run your business. Examples are rent of business premises, bank charges and merchant fees, membership of your professional associations, Xero subscriptions and so on. Some of these are fixed and you just have to pay them. Others offer the potential to review and minimise.
I was talking with a client just yesterday about her merchant fee charges. She’s paying a minimum $30 per month and looking at her most recent statement from the bank, she had $4.65 of charges relating to fees processed through her EFTPOS machine. That meant she paid $25.45 extra, or to put it another way, she effectively was paying 6 times the rate she thought she was. By finding an alternative that doesn’t have a minimum monthly spend will save her around $300 per year.
These are the expenses that help to run your business efficiently and smoothly. Examples are car parking fees, cleaning, bookkeeping, automated systems like Debtor Daddy or Receipt Bank and so on. Each makes your business day easier and are key to allowing you to concentrate on doing the work you love whilst having someone else or a system do the other tasks for you.
Whilst I believe that all these types of expenses should be paid, in some cases, you’ll have the opportunity to negotiate better rates. And if times get tough, these are the second level of expenses to be managing and considering eliminating.
These are the expenses that you don’t have to spend, but are either nice to have or that you have made a decision to have. Examples include fresh flowers or plants, a new computer when you already have one that works just fine, attending a non-essential conference or seminar and so on.
These are the first costs to manage and consider eliminating when times are tough but are the rewards for when you can afford them.
One trick I use is to make sure your accounting system is set up so that you can see all the expenses separately listed in the profit and loss statement so that it becomes a habit each month to run your eyes down the report and ask yourself whether you really need that expense or not. By managing, minimising and potentially eliminating expenses, you’ll improve your cash flow and increase your profit too.
In summary, take a look at your most recent profit and loss statement and look at every expense category and identify whether the expenses are Essential, Important or Discretionary. Then consider what you can minimise or potentially eliminate which will improve your cash flow and increase your profit.
I have years of experience helping business owners minimise expenses to maximise profit. If you’re struggling to come to grips with this, please do reach out and ask for help.
Article by Amanda Fisher