You can’t grow your business no matter how much money it makes if you waste it. Small businesses, particularly lean startups, must make the most of every dollar.
Businesses do not waste money in the same way that individuals do. While irresponsible consumers may eat out every night or deplete their savings accounts, businesses lose money in a less obvious way: by spending money on services they don’t realize they don’t need.
When investments fail to contribute to growth, business owners might as well burn their money. You can eliminate small wastes in your budget and use that money to boost your growth by analyzing your finances and adjusting your priorities.
Optimize Your Small Business Budget
You can’t plug financial leaks unless you know where your money is going. According to Clutch’s research, 61 percent of small businesses did not create official budgets in 2018.
If you don’t have a formal plan in place to track your spending, make one for your small business right now.
Remember that your business cannot grow unless you learn to manage your money and spend it wisely. Inadequate earnings count as a cash flow problem, but so does excessive spending. The billionaire entrepreneur Richard Branson sees financial management as critical to success, admitting, “It eventually became the reason why we had to sell Virgin Records — to free up cash to make Virgin Atlantic a success.”
Some brash entrepreneurs disregard their budgets because they believe everything will fall into place once they reach the next revenue milestone. In most cases, however, that threshold is never reached. Bad spending habits catch up with the company, forcing it to set new, higher revenue targets. If those business owners had taken the time to address their waste before pursuing aggressive growth, they would be able to enjoy their successes rather than worrying about the bills.
How to Stop Wasting Money
Enough already. To get the most out of your money and position your company for long-term growth, follow these three tips:
1. Know when to Negotiate
You are not required to pay the full list price for everything. As a business, you generate valuable revenue for your vendors, who will almost certainly cut you deals or offer alternative service packages to keep your account — but you must first ask them.
Look for ways to cut costs on some of your biggest expenses. Credit card processing fees, for example, do not have hard and fast rules. While you won’t be able to negotiate every aspect of your fees, you can look for vendors with lower markups. Don’t be fooled by simplicity; credit card processors want you to accept the first offer so you pay more without realizing you have other options.
Insurance companies, benefits providers, loan issuers, and leasing companies all want your business, and if you refuse, they may help you lower your payments. When it comes to negotiating, Tara Swart, a neuroscientist, and leadership coach say that “preparation is essential, as many people do not plan what they are going to say.” “Once planned, you must fully embody it.” When calling vendors to negotiate better deals, do your homework and have information about competitive rates and service offerings on hand.
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2. Test Expenses to See How they Affect your Budget
If you only look at your income and expenses at tax time, you’ll miss out on opportunities to make budget adjustments on the fly. Play with your budget and test potential changes using bookkeeping programs (or spreadsheets if you don’t mind a little manual number work).
What if you negotiated a 5% reduction in your next lease term and used the savings to increase spending in your best marketing channel? Is the money you saved enough to put some new ideas to the test? Or are there any looming expenses that you haven’t factored in? Instead of investing real money and hoping for the best, try out concepts on screen first, getting a 360-degree view of your financial situation.
When deciding where to reallocate spending, divide expenses into three categories: necessities, non-essentials, and luxuries. Negotiate essentials if you can, but understand that you won’t be able to stop paying them. Individually evaluate non-essential and luxury spending.
3. Audit your Bundled Services
Most businesses pay extra for services that they can already get through other vendor offerings. If you already had HBO through Hulu, you wouldn’t pay an extra $15 per month for a separate subscription. The same idea applies to your company.
Examine your bundled services to see if any redundancies can be eliminated. “Cloud-based suites of products often have some interconnectivity or dependency that justifies selling them together for a higher price — even if users might not want or need everything that’s included,” says Robin Hau, CEO of cloud services company SimplyClouds. There’s no reason to pay twice for services like email, group chat, file storage, and so on. Consider whether breaking up your bundled services could save you money by providing you with only what you truly require.
You will have more money to spend on growing your business if you follow these tips. Don’t squander your newfound wealth; instead, take your time to research your options and invest wisely. If you do it correctly, you will spend less, save more, and build a better future for your company.
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