Regular Expenses Every Business Owner Needs to Monitor
Running a business is a great venture, but not without difficulties. You will have to make sure that your venture is profitable, and your prices are competitive. Without keeping an eye on your profit margins, the value provided to your customers, and the regular expenses, you will soon notice that your company is losing money or profits. This is why it is extremely important that you start monitoring your regular expenses; fixed and variable as well, so you can make adjustments to your business and pricing strategy accordingly. Below you will find a few areas you should focus on highlighted.
Your biggest, and most important business cost is your premises. No matter if you are renting or owning your office or warehouse, you must keep a roof over your business to maintain your productivity and continue earning profits. Your business real estate costs might change over time, due to rent increase, or insurance and mortgage price trends. It is easy to set up a monthly payment and not looking at the invoices, so you should ensure that you know your business premises costs all the time by heart. Calculate property tax and other related costs, as well as local service expenses.
Whatever industry you are in, it is likely that you will need to be a member of a trade or local organization. Whether you use networking to create a buzz about your company, or donate to charities and have a subscription, you must make sure that you are getting a good return for your money. If you are a member of a professional trade organization, make sure you are maximizing the benefits of your subscription; get training, recommendations, updates, and even recommendations to justify the cost.
Not all taxation methods are suitable for every business. You will need to make sure that you are maximizing your investment and innovation allowances. In some cases, having a professional tax accountant to sort out your books can save you more money than the services would cost. You have to make sure that you are not paying more than you have to, and have money left to reinvest in your business.
Company insurance can be expensive. When you first take out the cover for the liability and employees, you might be happy with the cost, but you might not notice that the company is raising its prices a few dollars a time. If you don’t keep an eye on your insurance costs, they can spiral out of control. Providing health insurance and in-service benefits for your employees might be your legal obligation as an employer, but you will also have to minimize the costs and maximize the value you are getting. Shop around every now and then, especially if your insurance company has a bad habit of raising the prices.
When running a business, you will be charged for using services, such as water, electricity, and heating. If you don’t keep an eye on the prices, you might be put on a tariff that will significantly increase your operational expenses. Find a deal that suits your changing business needs. For example, if you are running a manufacturing plant and use a lot of power, you might want to sign up for a package that gives you bulk discounts rather than having the same prices as households in your area. If you would like to save even more, you might consider installing solar panels to provide you with free electricity for years to come.
While you might have long-term agreements with your suppliers, you might not want to check the prices every now and then. A ten per cent rise in raw material costs can increase your costs and reduce your profit margins significantly. Never cut corners when it comes to setting up supplier agreements, and ask for legal advice, so you can provide reliable services for your own customers.
Shipping and Storage
Compare the different deals, especially when it comes to shipping, storage and haulage. Check out the different packages offered by Freo Group to find out whether you would benefit from a long-term agreement instead of getting priced based on individual projects. If you are in the wholesale or manufacturing business, you will have to consider the reliability, competence, flexibility, reputation, customer services, as well as the prices of the companies you trust with your products.
Wages will also be a significant expense in your business. You will not only have to focus on training your employees but also increasing workplace productivity, so you can offer more value for your customers than your competition. There are several tools available from accounting firms to give you an idea on how much value an employee produces, and this will help you determine the right wages for everyone. If you struggle with productivity at the workplace, it might be a good idea to find a way to motivate your employees and tie their compensation to different targets and productivity levels.
One of the best ways of increasing the value your employees produce is providing them with something extra that they appreciate. Employee perks, however, cost money, and don’t always increase loyalty and productivity. If you evaluate them every 6-12 months and conduct an employee survey, you can not only match the interest of your workforce but also potentially save money. From free gym membership concessions to fruit, coffee, and nights out, you can cut back on the expenses that don’t seem to keep your workers engaged with your company.
No business can survive without marketing their products or services. If you would like to measure the effectiveness of a marketing campaign, you will find plenty of online tools that will help you. The main measure to focus on is return on investment. For example, you might employ a web designer to create a customer-friendly website, but you don’t see more visitors or sales. This means that you are not focusing your energy and resources in the right areas, and are wasting your money. Instead, create a strategy that is likely to generate measurable results in your business.
Every larger company will need their own IT infrastructure to help them serve their customers and keep an eye on the financial details, orders, and customer feedback. However, as your business changes, its needs do as well. If you ordered a software that is not compatible with the latest technology, you will spend too much updating and tweaking it. Instead of throwing money in an old system, you might be better off getting a flexible and easy to modify open source business software that will serve your needs better for years to come.
Communication costs can easily get out of control. If you give your employees a business cell phone to use when they are out of the office, you will have to add caps or sign up for business deals that give them unlimited usage. From internet packages to online collaboration tools that make it easier to manage remote workers and teams, or simply help you communicate with your customers and suppliers, all packages will come at a price. With the fast development of communication technology, it is a good idea to check your current subscriptions and research new packages, so you can save money long term and get the extra features your current communication suite is lacking.
Whether you have IT equipment at the office or production machinery at the workshop, you will need to make sure they are in the best possible operating condition. If your IT network is not protected adequately, as you don’t have local computer specialist competent in removing malware and installing security updates, you might have to face with unexpected downtime. Likewise, if you use heavy machinery to manufacture goods for end users, it is important that you enter a long-term maintenance agreement with a local firm, so you don’t have to deal with unexpected one-off repair costs.
Every business needs to invest a part of its profits in developing new technologies and solutions that provide more value for their customers. However, you will need to check the cost and the benefit of your innovation project before you start. You might want to employ or appoint a project manager who will create a financial plan and monitor the costs. Your innovation should be based on the market trends and demand, as well as your customers’ preferences, or it will never result in profit growth.
Whether you own a consultancy firm or a large wholesale company, you have to make sure that you are monitoring your regular expenses. From employee costs and productivity to supplier invoices and utility bills, there are several costs that can make or break your business. Your goal as a business owner should be to maximize the value you provide to your customers and your profits, while minimizing your operating cost and downtime.
Image credit: Shridhar Gupta