You can be on Entrepreneur’s cover!

The 8 Most Common Areas of Overspending in Business Regular audits could save you tons of money.

By Anna Johansson

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

malerapaso | Getty Images

Even if you have a fantastic, original business idea and a solid profitability model, your business can still suffer financially due to overspending. Businesses spend money on things they don't need and overspend on the things they do need. Unfortunately, business leaders rarely realize the error until it's already too late. After months, or even years of overspending, they miss out on significant profits, and in extreme cases, they're forced to wonder why the business is collapsing.

Related: 4 Money Management Tips for Entrepreneurs

The good news is, with proactive analysis and a willingness to change your habits, you can identify the most common areas of overspending in your business and work to get those expenses down.

The most common areas of overspending

  1. Labor. Many businesses overspend on labor for a few different reasons. First, they hire too quickly; entrepreneurs and small business owners are often eager to grow as quickly as possible. While this motivation is understandable, it leads business owners to hire prematurely. Soon, the business is overwhelmed with unnecessary employees and spending gets out of control.
  2. Waste and recycling. You probably don't think much about your waste and recycling costs, but in many cases, business owners overspend on these imperative services. According to P3 Cost Analysts, "The waste and recycling market is worth over $100,000,000,000 nationwide. In our experience our clients are overspending, on average, about 30-40 percent." Conducting a waste and recycling audit is a perfect start to resolving this area of overspending. You'll learn how much you're really paying and how much you could save with a few simple changes.
  3. Telecom services. Your business needs telecom services, including phone service, internet service and other staples. However, the costs for business telecom plans can be excessive. Chances are, you can find a provider that's both less expensive and more reliable, or at least negotiate with your current provider for a better deal.
  4. Utilities. In a similar vein, your business is likely overspending on utilities, both because you're consuming too many resources and because you're paying hidden extra fees and charges on your monthly utility bills. Again, a close audit here — combined with some operational changes — can help you save a ridiculous amount of money.
  5. Data storage and management. These days, data is a precious resource, so your business needs to spend money on data storage and management. But too many businesses end up paying money for services and systems they don't really need and end up paying fees for things they don't truly understand. In most cases, your data storage and management plan can be streamlined to save you money.
  6. Office expenses. According to SquareFoot.com, the average cost per square foot per month in New York is $85.20. In other words, if you're leasing a 2,000 square foot office space, you'll be paying an average of $170,400 per month. That's an exorbitant rate. Of course, many major American cities offer lower prices; New York is just an egregious example. But you also have to consider other office expenses that are easy to overspend on, such as paper products and equipment leases. Many businesses can operate at least partially remotely, if not fully remotely, sparing you these costs altogether. If not, simply moving to a different area or negotiating on your lease can cut your costs dramatically.
  7. Marketing and advertising. Marketing and advertising are practical necessities for most businesses, serving as primary channels for raising brand awareness and attracting new customers to the brand. However, because marketing strategies can get expensive, they're also a source of overspending. The easiest way to fight against this is to examine each potential marketing and advertising strategy in terms of its return on investment (ROI), rather than its upfront cost. In other words, what is this strategy bringing you, compared to what you're spending on it?
  8. Software subscriptions. There are many apps and platforms that can improve your business in some way, from project management apps that coordinate your team members to productivity apps that help you all work more efficiently. Each of these apps likely comes with a monthly subscription, charged automatically to your business. Though these rates are typically small, they can add up fast, so if your business overloads itself with too many subscriptions, the costs can become egregious.

Related: 10 Reasonable Ways For Entrepreneurs to Save Money

Coming up with an alternative plan

You can cut expenses in many different ways, depending on the nature of the overspending. For example, in some cases, you can eliminate a cost entirely by no longer paying for it (like in the case of subscriptions). In other cases, you'll need to negotiate or actively work to bring existing costs down.

Whatever the case, your business will be in a far better position if you regularly audit what you're spending and highlight areas of potential overspending before they get out of hand. Work with your financial team to ensure you have all the right monitoring systems in place.
Anna Johansson

Freelance writer

Anna Johansson is a freelance writer who specializes in social media and business development.

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

Editor's Pick

Side Hustle

He Took His Side Hustle Full-Time After Being Laid Off From Meta in 2023 — Now He Earns About $200,000 a Year: 'Sweet, Sweet Irony'

When Scott Goodfriend moved from Los Angeles to New York City, he became "obsessed" with the city's culinary offerings — and saw a business opportunity.

Personal Finance

How to Get a Lifetime of Investing Experience in Only One Year

Plus, how day traders can learn a lesson from pilots.

Branding

94% of Customers Say a Bad Review Made Them Avoid Buying From a Brand. Try These 4 Techniques to Protect Your Brand Reputation.

Maintaining a good reputation is key for any business today. With so many people's lives and shopping happening online, what is said about a company on the internet can greatly influence its success.

Travel

Save on Business Travel with Matt's Flight's Premium, Only $80 for Life

This premium plan features customized flight deal alerts and one-on-one planning with Matt himself.

Science & Technology

Here's One Reason Urban Transportation Won't Look the Same in a Decade

Micro-EVs may very well be the future of city driving. Here's why, and how investors can get ahead of it.

Marketing

I Got Over 225,000 Views in Just 3 Months With Short-Form Video — Here's Why It's the New Era of Marketing

Thanks to our new short-form video content strategy, we've amassed over 225,000 video views in just three months. Learn how to increase brand awareness through short-form video content.