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How to Get a Handle on Expenses

Take inventory, keep your books in order, cut back and hang on to your money as long as possible.
May 27, 2009
URL: http://www.entrepreneur.com/article/201898

This is not the kind of economy in which you should be spending unnecessarily. Some expenses are obvious areas to pare back, but others--those vampire expenses--can be less obvious.

Here are some tips to make your business budget a well-oiled machine.

Inventory your expenses
Before you can cut expenses, you need a good handle on where you spend money.

The most efficient way to track expenses is through a money-tracking software program like Quickbooks. Such programs can be the single most cost-effective investment a business owner can make, says Linda Homsey, a certified financial planner with Freya Financial Services in Winchester, Mass.

"Often my clients say, `I know where the money is going. I write the checks each month,' but it's not until we create a cash flow statement that the reality hits," Homsey says. "Seeing the numbers on paper is a different realization. I often hear, `Oh my gosh, I spend that much on.!'"

If you don't enter expenses yourself, make sure regular reports are printed and presented to you so you can be aware of and plug spending leaks. You'll also be able to see what vendors are charging for services and products and what expense areas are out-of-line with income.

It's more than numbers, according to Clare Wherley, a certified financial planner and certified public accountant with Lasses Wherley in New Providence, N.J. It's about finding trends, which you can track month-over-month, allowing you to plan accordingly.

"Decreasing revenues should give you a red alert long before you need to act," Wherley says. "For example, revenue growth percentages in investment firms were declining from the fourth quarter of 2007. That was a red flag long before the crash."

While you're organizing your books, make sure your business accounts and personal accounts are separate. Mingling your personal and business expenses will make it hard to analyze where the money is going and it could cause confusion at tax time. You might miss business expenses and not take full advantage of possible deductions.

7 Places to Cut Back
If your books are in order, it should be much easier to find areas to cut back.

  1. Credit costs: Read business credit card statements closely and look for less expensive borrowing opportunities, says Theresa Rosen, a certified financial planner with Prudence Financial in Sudbury, Mass.
  2. Call your landlord: Ask your landlord to cut your rent either temporarily or permanently. In the current economy, it may work in your favor as landlords don't want new vacancies, Homsey says.
  3. Subscriptions: If you keep magazines or newspapers in your waiting room, consider cutting back or bring in publications you receive at home.
  4. Clean it yourself: To save, Rosen eliminated her cleaning service and saved $300 a month.
  5. Use technology: Travel less and try more online options, such as videoconferencing.
  6. Call the phone company: Investigate less costly telephone and internet service that may work for your firm.
  7. Expenses should produce income: If your costs aren't leading to more business, cut back. For example, if one kind of advertising isn't working, try another venue, Homsey says.

Be realistic about the monetary impact versus the psychological impact. Saving $100 a month on coffee may have very little monetary impact long-term, but clients may get nervous if they feel your financial picture is bleak, Wherley said.

Hold onto Your Money
Many businesses try to pay their bills as soon as possible, but that could hurt cash flow. Don't be late, but don't be in a rush to pay, either. Keep inventory low and don't buy too far in advance.
Finally, have a contingency plan.

"That might mean a cash reserve, a credit line, just-in-time contracts, sub-contractors instead of or in addition to employees, a personnel policy that indicates the possibility of forced vacation or temporary layoffs and a great team of advisors to turn to for help," Wherley says.