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All small businesses should focus on taking care of their finances, including how to manage expenses. Not only does this help you keep track of your financial health, but can help you achieve your business goals and maximise profitability. With that in mind, here is a helpful guide to expense management for small business owners.
What are business expenses?
The term “business expenses” refers to any costs you incur in the day to day running of your business. These expenses include the cost of stock, materials, supplier services, rent, utilities, payroll, marketing and advertising, insurance, taxes, and more. Proper management of expenses could be critical for a business’s financial health and success.
Effective planning for expense management
Laying out a cash flow plan for your business can help you manage your expenses. As its name suggests, a cash flow plan looks at the shape of your cash flow over a given period, detailing when income is due to be received and when expenses are due to be paid. As a result, it will highlight times when you are likely to have surplus cash and times when you may have a shortfall.
You can create a cash flow plan using a spreadsheet or there are a number of tools and apps that can help. In particular, they can make it easier to test out different scenarios to see what effect they will have on your overall projections.
Track your income and outgoings effectively
If you don’t have a lot of expenses, you may be able to track income and outgoings effectively by using basic tools such as spreadsheets. Even for small businesses, however, this approach can be cumbersome and inconvenient, especially for mobile employees.
To make things easier, consider investing in accounting software with expense-tracking capabilities. Most are now cloud based and come with mobile apps, making it easier for you and mobile workers to record expenses promptly. Using an accounting package can also provide a straightforward way to ensure that receipts are stored, making things easier when it comes to paying your tax bill.
When tracking your income and outgoings, pay special attention to the following key points.
Make sure payments to suppliers are made on time
As well as avoiding penalties for late payments, it will help you to build up a solid track record with your suppliers. This may help you to negotiate better terms with them in the future and take priority when there is limited supply..
Stay on top of your own credit control
If you’re taking payment in arrears, you should have a robust process for invoicing and following up promptly on any payment issues. Late payment of invoices is a widespread issue faced by SMEs1, so it’s important to find a balance between maintaining good relationships with big clients and pushing to get paid the money that’s owed.
Check that your actual cash flow matches your forecast
Monitor your cash flow regularly. If your actual cash flow is different from your forecast, then you need to consider what impact that difference may have. The quicker you do this, the more time you could give yourself to take any necessary action.
Develop a robust purchasing strategy
A robust purchasing strategy should cover the following key points.
Always be clear on your purchasing goals
When making a purchase, assess what is a “must have” and what is a “nice to have” and use that to guide your decision.
Research every (significant) purchase
Once you’ve set out what you need and want from a purchase, research different options for achieving your goal. Speak to peers or mentors for recommendations, or speak to brokers or other experts if needed.
Have the confidence to negotiate
Never be afraid to approach sellers to ask for a better deal. The worst that can happen is that they say no. Know what your maximum is beforehand and think if there’s anything else you can offer to sweeten the deal.
Use credit to reduce or spread costs
Expenses can often create pinch points in your cash flow, particularly if they are unexpected. Business finance such as a FlexiPay line of credit can help you spread these costs over 3 months, helping to keep a smooth cash flow.
Affordable finance can help you reduce costs too. You can use it to:
- Bulk buy to get a discount
- Achieve minimum order thresholds
- Pay in advance to beat future inflation
- Avoid using other, more expensive forms of credit
- Negotiate better teams with suppliers and keep a good reputation
FlexiPay is interest-free, is free to set up and comes with a simple flat fee that you only pay when you use it. To see if it could help your business, apply today with no impact on your credit score.
- Half of invoices issues by SMEs are paid late – ICAEW – Oct 2022
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