If you are feeling a little despondent that your business appears to be doing well but the profits don’t reflect that, you may have some invisible money leakages due to a variety of reasons. Here are six tips that may help to stop some of the outflows.
Tip #1 Pay All Your Expenses from A Dedicated Business Bank Account.
Too often business owners reach into their own pockets or use personal credit cards to pay for expenses. That’s great but they forget to tell us about these costs and it’s not included in the end of year deductions.
The result of this is losing the tax deduction and potentially paying more tax than is necessary.
Tip #2 – Have a Good Record-Keeping System to Track Expenses.
A spreadsheet was a great way to account for your income and expenses in the past. However, with online accounting software such as Xero now readily available, we recommend you set yourself up with an online account as soon as possible.
As per Tip #1 – pay all your expenses from a dedicated account and you can easily keep track of what you have spent.
Tip #3 Review your Profit and Loss Statement Regularly
It is easy to spend on autopilot as you have many other items and tasks you need to focus on. You sign up for a subscription that was supposed to be helpful and before you know it, you haven’t had time to use it or it’s no longer relevant.
Subscriptions are generally on a direct debit payment method so you continue to pay for the service whether you use it or not.
Make time to review your current subscriptions quarterly, at a minimum, and cancel any that you haven’t used or with those that no longer add value to your business.
Keep an eye out for any expenses which seem to be climbing over time. If the increase is not in line with your revenue, there could be wastage happening
Tip #4 – Non-Productive Activities
It is quite easy to get totally distracted and before you know it that 5-minute social media post took an hour whilst you scrolled through your Facebook page.
This is an extreme example and may not be relevant to you, however it is to illustrate that time is money when running a business.
Is there a way to reduce distractions such as blocking social media pages on your computer for certain times of the day or turning your phone off while focusing on completing a task?
Remember the opportunity cost of your time. It might be better to pay an employee or contractor to lend a helping hand if it allows you to focus on the income-producing task.
Tip #5 – Suppliers
We all have our favourite suppliers we like to deal with but have you taken the time to see if this relationship is still providing good value?
Don’t just look at the cost in dollars but does dealing with one supplier create additional time you could be saving with another? Do you receive any loyalty bonuses for being a long time customer, or are there services being provided you’re not getting the most out of?
It could be time to review services received or do a comparative check to ensure a supplier is still the best fit for your business.
Tip #6 – Inventory
It’s a fine line balancing inventory levels with customer demands.
One way of reducing this cost is to use the Just In Time method of inventory management, that will keep your money in the business bank account longer.
The Just in time method means you order your inventory when you have received an order. Many furniture companies now only make the product once you’ve paid for it.
If this methodology is not an option for your business, are you reviewing stock levels regularly and ensuring anything obsolete is written off and any new stock purchased is in line with expected upcoming demands?
Another expense which can blow out is the office stationery. Keep track of it and – as the old saying goes – “if you take care of the pennies, the pounds will take care of themselves”.
If you need some extra help identifying and plugging leaks in your business, why not contact us for a free consultation by clicking the button below.
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