8 Ways Your Small Business Is Wasting Money
Most business owners do not think about cutting costs until they find themselves in a cash flow crisis. But when cash flow has already become an issue, cutting back on expenditure is like shutting the stable door after the horse has bolted. It would better to review your business costs regularly. But, when you are running a small business that is making money, looking for ways to save money may not be a priority.
Of course, cutting out unnecessary expenditure will improve your bottom line whether your business is profitable or not. And, when the economy takes a nosedive, you will be glad that already had your costs under control. So, whether you are facing a crisis or not, here are eight common ways that small businesses waste money.
1. Believing That You Must Speculate to Accumulate
It can be a costly mistake to believe that you must spend lots of money to earn lots of money. If you are not careful, thinking that you must speculate to accumulate will filter down into every buying decision that you make. You do not need to buy the best of everything to provide an excellent service to your customers. Yes, it can be an incredible ego boost to kit out your office with designer furniture. But your staff will be just as happy and productive sitting on budget office chairs.
2. Not Having a Proper Procurement Process
If you want to control the costs of your business, you need to control how items are purchased and who has the authority to make purchases. A larger organization would have a well-documented procurement process that would include authorization limits for personnel. A procurement process would also dictate things like how many quotations you must receive before placing an order. A similar procedure should be in place a small business, albeit perhaps less formal and on a smaller scale. So, for example, junior staff may only sign purchase orders up to $100, and at least three quotations must be obtained before a supplier is selected for any type of purchase.
3. Holding Too Much Inventory
Buying bulk can get you a lower unit price, but it is not always the cost saver that you might think that it is. If you buy anything that you later do not use or you must sell off cheaply, then the savings you originally made will be lost. Holding too much inventory also ties up working capital that might have been used more productively elsewhere.
4. Going High-Tech When Low-Tech Will Suffice
The latest software and hardware will undoubtedly do more, and it will probably do it faster. But do you need that speed and extra functionality right now? There is no benefit to the business whatsoever in having that latest technology if it does not offer a return on investment (ROI). Plus, if you buy slightly older technology, you will probably find that it is significantly cheaper than the latest model or version.
5. Hanging on to Old Tech When you Should be Investing in New
Conversely, if you are using outdated technology, then you should not be afraid of investing in new. If your investment in a new telephone system helped you significantly improve customer service, for example, then that was money well spent. Or, if you purchased a new accounting system that enabled you to send electronic invoices, that would save you money on printing and postage costs. Sending electronic invoices may also get your sales invoices paid faster.
6. Hiring Too Many Employees
Firing staff to save costs can be tough for some business owners. Still, if you have underperforming employees, it would be best to clear out the dead wood. If your business is large enough to have managers, you may also want to consider how many of those managers are necessary. A modern businessperson must consider the human factor when dealing with employees. Even so, employees cost money, so, like any resource, employees need to be providing value for money for the business.
7. Not Tracking Marketing ROI
Marketing can be a bottomless money pit if you are not incredibly careful. The cost of things like cost per click (CPC) advertising campaigns, for example, can very quickly mount up. But do you know if your CPC campaign is delivering sales or leads? It is crucial with any advertising or marketing that you quantify the result of each campaign. Even if you do not want to cut your marketing spend, tracking campaign ROI will enable you to target your marketing budget effectively.
8. Inefficient Use of Outsourcing
Outsourcing can be cost-effective in some circumstances, but it can also be a waste of money. Hiring a part-time virtual assistant, for example, would be far cheaper than employing a full-time member of staff. However, hiring an agency to manage your social media accounts when you or an employee have the time to do it would, of course, be a waste of money. Or what about outsourcing your accounting?
Conclusion
You cannot possibly do a cost-benefit analysis for every purchase. Even so, all the above points add up to one crucial lesson. When you are running a business, you must make every dollar that you spend count. One way of doing so is by using proper accounting software like Accounteer. Our team is always available to assist you in structuring your business finances.
