There are plenty of exciting things about running your own business - or any business for that matter. For example, many enjoy the freedom of being their own boss (or the boss) as well as the ability to choose what you work on and when and where!
One of the other benefits cited is the change to be paid to ‘do the things you love’. Yet this glosses over the reality of the many tedious, admin-related, tasks you actually end up doing. Legal hoops to jump through, payrolls to run, taxes to file, regulatory compliance to meet - none of this makes it to the highlight reel of the entrepreneurial adventure.
We further doubt that anyone is thrilled about keeping track of the day-to-day spending that running a business requires. (We know we didn’t - it’s the reason we started building this whole expenses management platform in the first place!) Unfortunately, even though it’s not a very glamorous part of the entrepreneurial lifestyle, it happens to be a vital part of a successful business.
Accounting is key. Having a handle on your expenses should be a priority for anyone who wants to get - and stay - ahead of the competition. Fortunately there are tools that can help you with this.
But first, why exactly is it so important to keep a close eye on your business expenses?
“What gets measured, gets improved”
One of the main reasons to have a thorough expense management process is it allows you to accurately measure what is happening. If nothing else, you’ll be able to maintain an excellent record of how much you are spending, what you are spending it on, when you are spending it and (at least with our ‘notes’ feature) why.
Because spending is so pervasive measuring all of this provides a broad snapshot of what is going on, you can almost feel the ‘pulse’ of the business. Use this data wisely, however, and it can also empower you to make better (or at least, more informed) decisions in all aspects of your business.
It might seem like you are not spending much on office supplies, for example, but each purchase can soon add up to a startlingly large amount. By keeping tabs on expenses such as these, you can get a good overview of where your money is going and identify any problematic areas where overspending is frequent. You can also identify common recurring purchases that might benefit from a subscription, or a bulk-order - giving you increased spending control and reducing that which is unnecessary.
Exercising Control & Restraint
Budgeting and overall spending control is a key element of running a business, and one that an all-in-one expenses management system can help you manage.
It’s all well and good to set a budget, but how often do those doing the actual spending end up losing track of the mounting costs and having to come back for an increase? This is especially prevalent when the funds are shared across a larger team or in multiple locations.
The key is being able to enforce the limits - a task that is made far easier with a system or process that allows you to see the spending as it happens in real time. Because while it’s certainly easier to just buy things as and when you need them, you may be unpleasantly surprised when it comes to looking at your profits for the month or year. Surprises are not good - they imply a lack of knowledge.
To avoid this, make sure that you designate a set amount for certain project-related expenses such as travel or food. The detailed stats you’ve collected using your expenses management platform of choice can be analysed in order to improve budgeting accuracy too - avoiding potentially costly situations.
You may also consider setting ‘interim limits’ too - values at which a review and analysis of the spending will be required. Or for longer projects, setting a weekly or monthly limit that ensures you don’t spend more than a certain amount too early on - leaving you scrambling for funds at a later date!
Of course, sometimes you will find yourself in unpredictable situations that require more outlay than usual. But by keeping a close eye on your finances you can create room for flexibility as and when it’s needed. Using the appropriate tools that harness the latest technology will empower you and your employees to act appropriately in these situations too.
Finally, keeping detailed records of your business expenses is vital to compiling an accurate and actionable forecast for your future finances and business as a whole.
In fact, the more information you have to draw upon, the more accurate your predictions will likely be. And with a reliable business forecast in place, you will be better placed to make the decisions that will ultimately determine your success.
You can also use the data to aid your identification of trends, including seasonal ones such as an increase in travel expenses around conference season. This allows you to project when you’ll need extra funds and even how much you’re likely to need.
You could also identify trends in spending that point your business in new directions. Has there been a significant increase in travel to a certain region? Perhaps it’s time to open a dedicated office there!
What’s more, an accurate forecast will also flag up any potential problems whilst it’s still early enough to correct them. Without one, you might not notice any financial pitfalls until it’s too late - exposing you and your business to serious risk.
The essential truth
Fundamentally, spending is an investment. You’ve got to spend money to make money, the old saying goes. And the 'laws' are broadly the same as investing too - where risk management is the key to long-term sustained success.
In business you’ll have a much better chance to succeed by protecting and minimising your ‘downside risk’ as much as possible - better knowledge of that risk makes this much easier to do.
This is why expenses are important. Not convinced yet? Then look out for part two, where we'll be investigating aspects around employee morale and time management.
So, given their importance, why wouldn't you invest in the tools to help you manage them?