Keeping your business afloat is often an ongoing struggle in today’s uncertain economy. One reason small business owners say their companies fail is running out of money.
Some of the explanations for this can include poor cash flow, insufficient sales, and badly managed costs. All things that could easily be addressed if the only action is taken to prevent the problems from arising in the first place. The issue is, many small business owners don’t realize there is a problem until it is too late.
In this article, we will be looking at improving some key areas to help keep your finances healthy. Primarily by looking at the importance of making budgets and managing your expenses.
Know What’s Going On
Knowing exactly what’s going on in your business would seem a pretty obvious thing to do. For an enterprise of any size, from sole traders to those with 500 employees or more, if you don’t accurately track what’s happening day to day, then things can quickly start going wrong.
Keeping on top of your expenses may seem like a chore, but as soon as tax season arrives you’ll be so glad you did! It can suddenly turn into a real nightmare if you’re left struggling to try and get all those tiny receipts in order at the last minute. Not only is that scenario unnecessarily stressful, but it can be a real shock to find out how those seemingly insignificant day-to-day costs have mounted up. They can cause a surprisingly big impact on your overall finances.
The Oxford dictionary states that “cash flow means the total amount of money being transferred into and out of a business, especially as affecting liquidity.”
If you don’t have enough cash flow you could quickly find your business is in difficulties, so surely it is only sensible to do all you can to ensure you manage it carefully to avoid a deficit.
By tracking expenses daily, you’ll be able to see immediately if there are any problems beginning to arise. This is basic expenses management and using it helps you act quickly if your expenses are exceeding income. It can help you be more financially aware and stem unnecessary money flows, making your business run leaner and so improve profits.
Creating detailed budgets prevents your business from falling prey to many financial problems along the way. No matter the size of your enterprise, having a detailed plan ensures you have a clear road map to ensure financial success.
Business expenses such as utilities, rent, loans, insurance, payroll, advertising, goods, and services are usually quite straightforward to forecast. Imagine the problems it could cause if you were unable to meet just one of these obligations. By budgeting, you help to prevent the possibility of the worst happening.
A company commonly maintains more than one type of budget, they can be long or short-term and for best effect must be kept current and updated regularly to accurately reflect what is happening within the business.
This allows everything to be planned for ahead of time and helps build a case for taking on new staff, product lines, premises and so on. Equally, if the unexpected happens (Covid -19 is a good example), they can help you prepare for difficulties that must be faced.
If you have a sales team who send in receipts for travel costs, fuel, meals, hotels, and other general expenses, then you need to ensure they all seem legitimate and proportional.
Equally, your employees don’t want to be waiting for months for you to reimburse them. Keeping everything running efficiently will keep you ahead of your costs and your staff repaid quickly making everyone happy.
When tax season comes around being fully prepared can save a huge amount of stress and worry. Keeping meticulous records ensures everything is prepared and ready to declare at tax time.
Tax-deductible expenses differ from country to country and using them can help you get some money back, always a good thing in my book! Ensure you find out which these are with your local tax office.
Examples can include:
- Fuel and travel expenses
- Business meetings and lunches
- Mobile phone and data costs
- Office stationery supplies
- Home office expenses
If you don’t accurately categorize and disclose these expenses, then you won’t be able to claim for them and more of your hard-earned money will end up in the hands of the taxman.
Making Budgets and Managing Your Expenses for Business Profitability
Gross profit, simply put, is income minus expenditure. Knowing what this figure is (or very close to it) lets you see if your business is running viably, making it more attractive to investors, or improving your chances of receiving financial aid in the form of business loans, mortgages, and so on.
It may seem obvious that all business owners would want to know how well their business is doing, but the reality is many have very little idea of the real picture until they do their annual tax return.
Tracking all your business expenses daily can prevent you from having to make ‘best guesses’ about your profitability. Even if you can see what appears like a healthy number of sales coming in, if your expenses are too great, you’re heading for trouble. Many business owners believe they are doing better and have higher profits than they actually do.
To maintain a healthy bottom line, it’s crucial you:
- Stay aware of how much your business is spending
- Stay on top of money management
- Keep your expenses as lean as possible to achieve the best profits
To aid in this, you’ll need to invest in tools to help you keep track of expenditure. They can ensure your records stay up to date and most importantly keep you in the driving seat.
Due to the importance of maintaining budgets and tracking expenses, it may be worth investing in some help. If you have an in-house accounts person who can do the job, you may need to provide them with additional software to make it faster, more efficient, and accurate. If this isn’t possible, then it could also be worth using an outside accountant with the necessary expertise.
If you don’t know where the money in your business is going, or where it is coming from, then you have no way of knowing what’s truly going on and if you are succeeding or failing. You can’t be prepared when the unforeseen happens and you can’t make any plans for the future.
With the Expenses App, company and employee expenses can be tracked and managed, quickly and efficiently.
Use Reimbursable Expenses to keep track of the payments your employees have made on behalf of your company. Then pay them back easily.
Your employees can upload their expenses and request reimbursement directly in the app. They will need to include information such as the details, taxes, and date of the expense.
Using a set of simple widgets, you can check the status of the expenses and see what has been paid and what is pending.
Just like other Akaunting apps, it integrates right into your accounting suite, in this instance under reports.
Not taking the time to make budgets and manage expenses could result in you losing your business. It’s a crucial part of good financial practice and not only helps your business survive but to thrive.
In these difficult economic times, it’s become necessary to not only plan ahead but to stay flexible. Without knowing precisely where your company stands at any one time, you will not be able to implement new strategies. This could be fatal and ultimately see the failure of the whole enterprise.
By ensuring you stay one step ahead, making budgets, and managing expenses, you’ll be able to move quickly to avoid problems keeping your finances strong and healthy.