If you’re not keeping track of your small business expenses, you could be losing money without realizing it. This money, if reinvested into your business, may have the potential to grow your company faster and make it much easier to boost revenue generation.
Money leaks are common in small businesses. By tweaking how you do small things in your business, you can improve your bottom line. These leaks, like a dripping faucet, are often so obvious that they are hiding in plain sight.
Here are 7 simple money leaks that you may not have noticed before:
1. Rebalance your negative cash flow.
Cash is the money you have in your register and bank account, but cash flow is the money coming into your business and leaving it. It is the movement of money, rather than the amount of money itself.
Negative cash flow can occur when you extend credit to your customers but don’t get credit from your own creditors. As a result, you have to pay for things before you have enough money to pay for them.
Perhaps you’re paying out of your own pocket to cover expenses before your invoices to your customers get paid.
Perhaps you’re getting fined for late payments.
Perhaps you’re hurting your credit score because of carrying overdue balances on your business credit cards.
Although your business is profitable on paper (you have more income than expenses), you’re struggling because of negative cash flow. It’s not a money issue, but a timing one.
Fortunately, an invoice factoring service can help you rebalance. Just send them your invoice and they will send you money. They wait for your customers to pay so that you don’t have to.
2. Review your bills.
It’s possible that you’re paying for services that you no longer use. It’s also possible that you can get the same service at a lower price from another vendor.
3. Automate your business processes.
You may be keeping track of your expenses the old fashioned way—with pen and paper or filing cabinets. User-friendly cloud-based accounting software, can help you record and manage your expenses with much less effort.
Think about your other business processes, too.
If you jot appointments or tasks on a paper calendar, using Google Calendar might make it easier to keep track of things.
If you keep files full of notes on how to improve your business and files full of important contacts, using Evernote will streamline things for you.
4. Separate your business and personal accounts.
It’s easy to commingle your business and personal accounts. You may pay for your business expenses with your own money, or the other way around, just because you pulled out the wrong checkbook or credit card from your pocket.
Although you might later catch up and reimburse yourself, you can avoid the hassle by simply making sure that you keep your two accounts separate.
Make a simple rule for yourself. When you have to give an employee petty cash, it should come out of business funds. If you go out for lunch, you should pay for it out of your personal funds.
5. Be less liberal with your petty cash.
Petty cash is usually such a small amount that you don’t even think about it. Perhaps, you use it to buy everyone in your office coffee because it’s a snowy day and you want to cheer people up. Perhaps, you need to get some stationary for your desk because your supplies are running low. Little by little, dollar by dollar, you are spending more than necessary.
Instead of petty cash purchases, make a budget. All small expenses have to come out of that budget. This will make you spend less money on miscellaneous things and equipment and buy in bulk to get discounts.
6. Keep better track of your receipts.
It’s easy to lose track of your receipts. Travel expenses, luncheons, and other expenses, if business related, can be used as a tax deductible expense.
The manual way of keeping receipts is to write down the purpose of the receipt at the back and put it in a shoebox. The paperless route, which is more efficient, is to scan each receipt and store the images digitally.
7. Improve your record-keeping system.
When you write checks, you may have to jot down how much you spent, where, and why. Over time, you might forget to write things down and lose track of where you spend most of your money. By not keeping accurate records, you’re not sure where your money is going. Since you’re not sure, you can’t adjust your budget.
By using your business credit card, all this record keeping is done for you automatically. Your statements will neatly break your expenses into monthly, quarterly and annual categories.
Another way of keeping more accurate records is to use mobile apps or cloud-based apps to track expenses throughout the day. They can also be easily integrated into your accounting software.
Create a Realistic Budget
After you plug these 7 money leaks, why not create weekly, monthly, quarterly, and annual reports of your income and outgo. This way, you will have real data to create a realistic budget.