📺 Stream EntrepreneurTV for Free 📺

You'll Never Control Expenses If Your Team Doesn't Know What Anything Costs Even profitable businesses are better off watching the pennies. Step one is a friendly tutorial about the costs that employees drive.

By David Ciccarelli Edited by Dan Bova

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Now that we're a couple of weeks into the new year, you may have received the financial results from last year.

You've probably tallied up costs on a line-by-line basis, grouping related costs together, and in the process you've likely, ultimately, figured out if the last year was profitable. How does it look?

It's time now to use that historical data and firm up your plan for the upcoming year. This exercise is often called budgeting, or if you've included inputs and cost drivers into your spreadsheet, you've created a financial model.

However complex you've made your spreadsheet, the important thing is that you've completed a necessary planning tool for the upcoming year.

Related: 4 Tips for Managing Cash Flow When You're Bootstrapping

A typical list of operating expenses could include:

  • Accounting and legal fees

  • Advertising and promotion

  • Allowance for bad debt

  • Bank account service fees

  • Credit card processing fees

  • Healthcare insurance

  • Interest on debt

  • Office items

  • Property insurance

  • Rent

  • Salaries and wages

  • Software licenses

  • Telecommunications

As an entrepreneur, you intuitively understand what each item means and you also inherently understand the importance of minimizing these expenses. But let me ask, have you communicated the need to minimize expenses to the rest of your team?

Related: Five Best Apps to Forecast and Manage Cash Flow

At a recent leadership team meeting, we discussed a potential disconnect between our sales team who are posting new deals to Salesforce.com daily and the operating side of the business who are responsible for keeping costs under control. While there is a base level of understanding that expenses exist, I personally felt that I should raise the awareness level in this area.

So, at the monthly "Rally," an all-hands meeting where we gather to recap the results from the last month and verbally relay projects for the upcoming month, I seized the opportunity to engage our team in a group exercise, which I called "The Cost Is Right."

It worked like this: I printed off the above list of expenses (omitting the salaries and wages) and then on our big screen, I posted the numbers for the actual amount we spend monthly, ordered from highest to lowest. Amounts ranged from $33,000 to $500. For fun, I even threw in a fictitious expense, interior decorating services, which clearly we do not spend money on.

Then, accompanied by a few Frank Sinatra songs, each team worked to match up the expense line item with the expense amount.

For the "big reveal," I put up the answers one-by-one and we discussed why each item costs so much and how costs can be reduced. The best score was 7 out of 12. Thankfully, everyone knew we didn't spend a dime on interior design services.

What were the takeaways? First, this group session provided me the opportunity to explain that we do have expenses and allowed me to assign simplified definitions for each item. Immediately, I increased the level of financial intelligence by an order of magnitude.

Second, when there are changes in our operation in the future, I've created a framework for discussion. New words have been added to our corporate lexicon.

Third, the team has a greater understanding of the complexities of our business. Showing that credit card processing fees are 3 percent of sales was eye-opening for many. That number can really add up, especially if you conduct most of your sales online. Then, explaining how expenses relate to one another certainly raises the awareness level.

Whether you've buttoned-down your annual budget or not, I challenge you take your list of expenses and discuss them with your team. Should you choose to use percentages instead of actual amounts, the outcomes will be the same; your team will have a greater appreciation for your organization's expense structure and you will have raised their level of financial intelligence.

Related: How to Analyze Your Business Expenses

David Ciccarelli

Founder and CEO of Voices

For the last decade, David, with the help of his team, has grown Voices to become the leader in the voice-over industry. As CEO, David is responsible for setting the vision, executing the growth strategy, creating a vibrant culture and managing the company on a day-to-day basis.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Growing a Business

Clinton Sparks Podcast: The Struggles and Fame of Rapper Lil Yachty's Entrepreneurship Journey in Hip-Hop

This podcast is a fun, entertaining and informative show that will teach you how to succeed and achieve your goals with practical advice and actionable steps given through compelling stories and conversations with Clinton and his guests.


You're Reading Body Language All Wrong — And It's Putting Your Next Business Deal On The Line. Decode Non-Verbal Cues By Following These 5 Steps.

In the intricate dance of business meeting negotiations, the nuances of communication become the fulcrum on which decisions balance. For the astute entrepreneur, understanding body language is not just a skill; it's an imperative. However, relying solely on isolated gestures can be deceptive. To truly harness the power of non-verbal cues, one must grasp the concept of "clusters."

Business News

The Music Giant Behind Beyoncé, Harry Styles and Adele Bars ChatGPT From Using Its Songs

The world's largest music publisher sent letters to more than 700 companies demanding information about how its artists' songs were used.

Business News

OpenAI's New Deal Sees the ChatGPT Trailblazer Following a Competitor's Lead

OpenAI is treading on Google's AI-training territory following its new deal with Reddit.


Want to Be More Productive? Here's How Google Executives Structure Their Schedules

These five tactics from inside Google will help you focus and protect your time.

Side Hustle

These Coworkers-Turned-Friends Started a Side Hustle on Amazon — Now It's a 'Full Hustle' Earning Over $20 Million a Year: 'Jump in With Both Feet'

Achal Patel and Russell Gong met at a large consulting firm and "bonded over a shared vision to create a mission-led company."