Always be wary of runaway expenses
Feeling low on funds? You are pretty sure that your company had a stellar performance last month, but where has all the profits gone? Are you realizing the full potential (in terms of profit) of your company?
I have seen countless companies, both established and start-ups who fell victim to overspending. They do not seem to realize this sometimes because of the illusion that they are earning enough. They do not see the expenses that they are incurring simply because they are still earning. The problem can only be identified with a thorough investigation.
Here are some tips to help your business avoid spending too much:
Justify your marketing expenses.
How much are you spending for your advertising? What happens after posting that ad? Was there an increase in client inquiries? How about in your sales? Are you sure that the increase is due to the ad that you posted? Sometimes we might not be aware that we are spending too much in our marketing tools, or that we are spending allocated funds improperly. In short, the return generated by your investment is bad. How can you know if you’re spending well on your ads? Check the returns. If you know how to check the metrics, do so. Observe the movements together with the amount of budget you allocate for the ads. If not, you can observe if there will be an increase in the number of customers, conduct a survey, ask your clients where they learned about your products or services. If it’s not because of that ad you posted, then stop buying that ad space. Try out different ad spaces and see which of them actually generates an increase in traffic. Remember, an effective marketing campaign must be an investment rather than an expense.
Overstaffing. How many employees do you have? What are their functions? Are they really busy the whole day, or are the greater number their working hours just spent scrolling down on their social media accounts? Take a look at your employees and see if you have the right amount of people, or more.
Overstaffing will cost you more than just monthly salary expenses. Consider 13th month pays, increase in consumption of utilities, and faster wear and tear of furniture and equipment. The more employees you have, the quicker your equipment can break down after several use. You may have also incurred more in buying extra furniture (tables, chairs, and computers). Study your daily operations and factor in the demand for your products or services. If you see that the number of employees you have cannot justify the low demand, it’s time to think of layoffs.
Excessive Rentals. How much are you spending for rent, electricity, water, Internet connection? Are you fully utilizing the entire space that you rent, or just a portion of it? Do you really need to be on the ground floor of the building? If you think that your space is a bit too much, why not consider renting a smaller and cheaper one to reduce cost? Renting a space that has the right size will not only help you avoid larger cost, but also make it easier for you to manage your employees and maintain the area. Especially if you are just starting your own business, always remember that too much space is much costly.
Bloated and missing inventories. Do you monitor your inventories properly? Are you getting more stocks than you can sell fast enough? Which of your products generate the highest sales and which ones are lemons? You should know how fast your products are sold and use that for estimating your reordering point so that you do not spend too much and you do not throw away spoiled stocks.
One other thing that you have to be mindful of with your inventory is if your records match the actual count. When was the last time you audited your stocks? Are you sure there are not any items missing? You can never be too careful in checking your inventories. See if there are no anomalous activities happening under your management.
There are countless ways that your expenses can spiral out of control and you must be always be vigilant in spending each peso. Do not let your ego get in the way of prudent spending. In the long run, companies which are most conservative with their expenses would last longer.