Contributed post
All businesses need to constantly take a long hard look at themselves. It pays to be reflective and analyse how things are going at regular intervals. Some people run a cheeky quarterly analysis, others like to do things month to month. Personally, I think month to month is the best way to do things as you’re constantly staying on top of things.
What are you looking at? Well, you go through with an idea known as management accounting. Essentially, this is where you take a look at your monthly accounts to figure out what’s going well and what isn’t. It mentions on smallbusiness.chron.com that there are plenty of advantages to using management accounting. It allows you to see your cash flow, profits, losses, assets, and so much more. In doing so, you can identify whether or not your business is losing money, and where that money is lost.
Today, we’re going to talk about just that; where is your money going? After reviewing months of accounting data, you find out that your company is losing a lot more money than you thought.
How? Why? What’s going on?
The bad news is, any money you lose will lower your profit margins and mean your business makes less money than it should. The good news is, it’s normally quite easy to track things back to the source. To help you out, here are some of the most common areas of your business where money is lost, and some advice on how to plug those leaks for good.
Are your employees worth their costs? Source
Employees
Saying that your business is losing money through your employees is a difficult statement to make. Largely because it’s a very complicated situation. Businesses need to pay their employees and also provide benefits, etc. If you run the calculations, you will be able to figure out how much one employee ‘costs’ for your business. However, you also have to take into account the money they help bring in. As such, some employees in some businesses are worth the expense. They may cost a lot of money, but they plug their own leak by bringing more money back into the company. The difference is when you have employees that don’t help you make more money and won’t plug their leaks, meaning you constantly lose money every month.
How do you solve a problem like employees? There are two main trails of thought on this matter, and both will help you out. The first is to try and reduce the costs of each employee by finding a way to call them self-employed contractors instead of actual workers. There’s an article on www.theguardian.com from the UK that gives a good example of this. Here, a company wins the right to not pay employee benefits because their staff are technically self-employed. So, if you try and hire freelance workers on freelance contracts, then you can miss out on all the expensive extras of hiring employees. It may not work for every job, but it will definitely help slash costs in some departments. The second idea is simple; work out the cost-benefit of hiring employees. Figure out how much someone will cost to hire, and how much you’ll get out of them. If you find out the benefits won’t cover the costs, then you’ll probably lose money and can avoid hiring them in the first place.
It’s very important to know that not all of your employees will lose money for your business. There are plenty of people that will be great investments for your business and help bring in more money than they cost.
Is your equipment costing your business? Credit
Business Equipment
It’s very easy to trace your lack of money back to all of your business equipment. Companies that require lots of heavy-duty equipment and machinery are usually the ones that suffer most here. After all, buying equipment costs a lot of money, and renting it is hardly easier for your business accounts! Regardless of whether you rent or buy, a huge chunk of your money will go on your equipment. While renting avoids paying a huge sum of money all at once, it means you have regular payments leaving your account, which means money is constantly leaving your business. Buying requires loads of money to go at one time, which can put you in debt for a long period.
No matter how you look at it, your equipment can cause money concerns and be a constant leak in your cash flow. Can you solve this issue? There are some ideas, the first of which is to think about how you buy your equipment. If you take a look at equifyllc.com today, you’ll see there are many auctions where can get your hands on equipment. The benefit of this is that you don’t pay the full retail price, so can make savings. I always think buying is the ideal option as you own the equipment and you won’t have a constant expense paying rent for it. So, to stop your business losing money, purchase all essential items of equipment, and only rent things that you rarely use. Perhaps you have a specialist job that isn’t part of your main service and requires a certain piece of kit. There’s no point buying it as it won’t be used that much, so, rent it when the service is ordered.
These tips should help you plug this leak and prevent your company from losing money thanks to your equipment. Again, you have to think about the cost-benefit of your business equipment. Do you really need something to carry out jobs? Or can you save money by not buying it and just renting it when it becomes necessary?
Are you losing money through ineffective marketing ideas? Link
Marketing & Advertising
Now, it’s clear that marketing & advertising will bring your business a load of benefits. You don’t have to be a genius to figure out that a properly marketed business will do a lot better than the same business with zero marketing at all. As it shows on thebalance.com, there are loads of ways in which you can improve your company and find more customers through marketing. The whole idea is to attract more people to your business, get more customers, and make more money. So, in a lot of instances, companies may see they’re gaining money through marketing and advertising, rather than losing it. However, there are plenty of examples when, after reviewing your accounts, you see you’re spending far too much for far too little gain. You’re paying for so many different marketing ideas, but not all of them are performing as well as you’d like. As a result, money is leaking out of your company every month.
The best way to solve this is to properly look at and analyse all your marketing data. This is where digital marketing becomes beneficial as it’s so easy to monitor these techniques. If you do a lot of your marketing online, then you can easily see how many people click on your adverts or interact with your social media posts. When you check your web analytics, you’ll see how people got to your site, which enables you to see which marketing methods are working better than others. You may find that one thing is severely underperforming compared to another thing. In which case, you can save money by stopping the bad technique altogether. This prevents money from needlessly leaving your business without bringing anything back in. Or, you could take that money and invest it in the marketing techniques you know are working well, to improve them even more and bring in more money! It’s hard to see how effective other forms of marketing and advertising are – like print adverts and billboards, etc. The only way you’ll figure this out is by asking people how they found out about your business in a survey. However, people might not want to take the survey, so you’re none the wiser. This is why it’s preferable to stick to digital marketing ideas where you can easily discover how effective they are – thus, you can save money by adjusting your budget.
Again, it’s all about figuring out how your business benefits from the costs. If you see an improvement in the size of your customer base and sales figures, then you know it’s worth spending money on that technique. What you can’t do is cease marketing and advertising altogether. A lot of new business owners may read that marketing/advertising is expensive, and just decide against it. You’ll hurt your business even more by doing this!
In summary, I’ve provided three of the most common areas of your business that are leaking money. There could well be more, but that’s up to you to analyse and figure out. Every business will have expenses, it’s totally unavoidable. The key is finding ways to make your expenses as beneficial as possible for your business. Ideally, you want to only spend money on things that directly contribute to your success, and will bring in more money. So, plug any leaks where money is leaving your business without bringing in much in return.