How to Manage Expenses? Guide to Financial Control

In any business, expenses are a natural part of the day-to-day operations—from the obvious costs like supplies and wages to the ones that catch you by surprise. Think about the time you thought you had everything under control, only to be hit with an unexpected bill for equipment repairs or shipping delays. That stress can quickly build up, and without a plan, it can feel like expenses are spiralling out of control.

Expense management is all about taking charge of these costs and making sure they align with your financial goals. With the right approach, you can track where your money is going and make smarter spending decisions. This blog will walk you through key areas such as understanding what business expenses are, using an expense management system, and practical tips on how to keep track of business expenses.

You wouldn't drive with your eyes closed, would you? Managing your business expenses is no different – you need to see where your money is going to stay in control.

Think of expense tracking as shining a light on your spending habits. It can help you:

• Identify patterns: Are you consistently overspending in certain areas?
• Spot areas for improvement: Could you negotiate better rates with suppliers? Are there subscriptions you can live without?
• Make informed decisions: Having accurate expense data helps you make smarter choices about pricing, budgeting, and investments.

Luckily, keeping tabs on your spending doesn't have to be a chore. Here are a few popular methods:

• Budgeting Apps and Software: These digital tools automate much of the tracking process, often syncing with your bank accounts for seamless recording.

• Traditional Pen and Paper: Sometimes, the old-school methods still work!

The best method for you will depend on your personal preferences, tech savviness, and the complexity of your business finances.

A budget is more than just a spreadsheet – it's a roadmap to reach your financial destinations.

Before you start crunching numbers, take some time to define your financial goals. What are you working towards?

• Saving for new equipment? Imagine that shiny new mixing machine for your cosmetics line!
• Paying off debt? Saying goodbye to those loan repayments can feel amazing.
• Building a cash cushion for unexpected expenses? Having a financial safety net can bring peace of mind.

Having clear goals will keep you motivated and help you stay on track.

It's easy to overspend when you haven't separated your "must-haves" from your "nice-to-haves."

• Needs: These are the essential expenses that keep your business running, such as rent, utilities, inventory, and staff wages. For an online bookshop, this might include website hosting fees and postage costs.
• Wants: These are expenses that can enhance your business but aren't strictly necessary for day-to-day operations. For the bookshop, this could be upgrading to fancier packaging or investing in a new coffee machine for the office.

While "wants" can be tempting, prioritising "needs" in your budget keeps your finances healthy.

Budgeting frameworks can provide helpful guidelines for allocating your income. One popular method is the 50/30/20 rule:

• 50% Needs: Allocate 50% of your income to essential expenses (rent, bills, inventory).
• 30% Wants: Set aside 30% for non-essential business expenses.
• 20% Savings: Direct 20% towards savings, debt repayment, or investments.

For example, an online shoe seller earning $5,000 per month might allocate:

• $2,500 (50%) to needs like website fees, stock purchases, and shipping.
• $1,500 (30%) to wants like new product photography or attending an industry conference.
• $1,000 (20%) to savings for a new delivery van or to pay down a business loan.

Other frameworks, like envelope budgeting (dividing cash into categories) or zero-based budgeting (allocating every dollar), can also be effective. The key is to find a system that works for your business and spending habits.

Keeping expenses in check is an ongoing process. Here are some practical tips to help trim the fat from your budget:

Your bills aren't set in stone!

• Utilities and Telecommunications: Regularly review your utility (electricity, gas, water) and telecommunications (internet, phone) bills to ensure you're on the best possible plan for your usage.
• Insurance Premiums: Shop around for insurance quotes periodically to see if you can find better coverage at a lower cost.

Streamlining your operations could lead to cost savings.

• Paperless: Reduce printing and paper costs by transitioning to digital documentation, online invoicing, and electronic communication whenever possible.

When you're running your own show, staying organised can be key – especially when it comes to finances.

Imagine trying to find a receipt for printer ink in a pile of grocery dockets – not fun! That's why it is good to keep your business and personal finances separate, especially if you're a sole trader.

Opening a dedicated business bank account and using a separate credit card (if needed) for business purchases can help make tracking expenses easier. Plus, it can help you maintain a clear picture of your business's financial health.

Spreadsheets can be your friend, but technology could make expense management even easier. There are plenty of accounting software programs and apps specifically designed for businesses, both big and small.

These tools can help you:

• Automate expense tracking by connecting to your bank accounts and credit cards.
• Generate detailed reports to analyse your spending patterns.
• Simplify invoicing and payments.

Investing in the right tools can save you time and headaches in the long run.

Remember, managing your expenses effectively is an ongoing process. By staying organised, making informed decisions, and seeking help when you need it, you can set your business up for financial success.

Managing expenses effectively is like keeping your business engine running smoothly. It takes a bit of effort upfront, but the rewards can be well worth it.

Remember, it's not about penny-pinching – it's about making informed decisions, tracking your spending, and optimising your operations for financial health. And just like any good habit, expense management requires ongoing attention and commitment.

As you continue to build a thriving business, remember that reaching new customers can often be key to growth. For many entrepreneurs, the decision to sell on Amazon has opened up exciting possibilities. Check out our Seller Spotlight Blog to hear their experiences firsthand.