Contributed by Fit Small Business
Every business owner practices accounting, from solopreneurs collecting payments to startups paying rent on a coworking space. But if a business owner doesn’t have strong bookkeeping skills or team members aren’t versed in proper budget management, it can be easy to get in hot water. Many businesses have failed because of overspending and poor financial decision-making.
Fortunately, this doesn’t have to happen to you. It’s now easier than ever to manage expenses and establish good accounting practices. Even if you run a business on a budget, follow this guide for smoother and more effective expense management.
1. Invest in small business accounting tools
The first way to improve your expense management is to look for affordable tools to help you balance your books. According to research by Wakefield Research and Concur, 84% of SMBs still rely on manual processes to manage their expenses. Additionally, 69% of SMBs use spreadsheets to manage their budgets and accounting.
There are dozens of accounting tools meant to help small businesses—many of which are free or cheap. You can automate invoices, easily record payments, and manage your cash flow all with one or two basic systems.
Not only will digital or software-based accounting tools make it easier to manage your expenses (helping you identify waste or missed payments), they will also make it faster. You can save several hours and headaches each month by not having to pour over a few dozen spreadsheets. This, in turn, saves you money by optimizing your human resources.
2. Train your staff to better track expenses
If you are a small business owner, then you likely work closely with your accountant, reviewing budgets and expenses for various teams. However, one of the best ways to save time and frustration when doing this is to train your staff on basic accounting and budget management principles.
Start with your managers and introduce them to your expense-tracking process. If every manager follows a unified process and passes it down to their team, then you place the accountability on those who are doing the spending. This unified process will also make it easy to audit who is overspending and decide which items aren’t necessary.
As a business owner, your job is to evaluate the budgetary decisions made by your team, not fill out expense reports for them.
3. Contract an accountant for your small business
You don’t have to be an accounting expert to manage your expenses successfully. There are hundreds of accounting professionals and companies willing to help you. In a survey of 300 SMBs, 45% said they don’t have either an accountant or bookkeeper helping them manage their operations. Furthermore, 72% have the same person managing their accounting and their human resources work.
If you’re not ready to hire a full-time, in-house accountant, contract an accounting professional to start managing your books. This can ensure cleaner books, and it can free up time on your calendar to focus on growing your business.
4. Periodically audit your costs
You would be surprised how many costs you take for granted or keep paying each month and year without question. Look at this from a personal level: What gym memberships or subscription services do you have that you never use? The easiest way to save money and better manage your expenses is to look for monthly costs that you simply don’t need.
On a company level, these expenses might include software services that you used for a month and then never canceled or memberships to groups or organizations that you pay even though you never go to any networking events or meetings.
Set up annual or biannual reviews of your expenses, and identify costs that you don’t need. You can also use this time to audit necessary costs like rent or payments to suppliers, to make sure that you are getting the best value possible for these expenses.
5. Stay on top of your invoices and payments
One of the biggest challenges that small business owners face is staying on top of their invoices and payments. Whether you need to send invoices to clients or make payments on existing bills, it is easy for a few papers to pile up until the number of invoices becomes overwhelming.
When you let your invoices pile up, you put your business at risk. You will always have this wall of debt that you need to keep paying off. Your debt-to-income levels will be off, and you could have some months where you have significantly less cash flow because you waited to pay.
Delaying invoices also affects your relationships with your contractors. They will start to wonder whether you are reliable and reconsider their working relationship because your company takes too long to pay them. You can stunt your company’s growth by fraying your professional relationships.
6. Prepare for increased costs in the future
Once you have implemented a strategic accounting process, you can then look ahead to prepare for higher expenses in the future. Too many SMBs live month-to-month, hoping the cash in the bank will get them through the next few weeks. If you want to operate a stable business, then you need to plan ahead.
For example, if you have high-demand seasons and low seasons, you need to budget your marketing appropriately. Allocate more funds to the high-demand seasons, so you maximize your impact. Then pull back during the quiet months when fewer people are likely to buy your products. Taking steps like this will allow you to be successful in the future—better planning means less scrambling.
Your goal should be to move away from the day-to-day accounting operations and start handling big-picture, strategic decisions. Your business needs you to create a path forward to thrive, not just try to survive.
If you don’t stay on top of your expenses and accounting tasks, then they will overpower you. The best way to run your small business successfully is to establish systems that will help you stay organized, efficient, and scalable. Only then will you be ready for whatever financial curveballs the world throws at your business.