I learned about business expenses at one of my first jobs. It was in a fast food restaurant, working as an assistant manager I was responsible for placing the orders for food and supplies. I noticed how many thousands of dollars we spent on ketchup, mayonnaise and other sauce packets. Then I watched for a while, to see how many the employees were handing out at the drive-through window.
Pretty quickly, I realized that many of the employees were putting a handful of packets in the bag for customers - before even asking if they wanted any. It was time for a new policy, I decided. I informed all the employees that they were to ask the customers if they wanted ketchup, mustard or any other sauce packets. Then they were to either ask how many they wanted, or let the customer see them putting just a few in the bag, so the customer could ask for more if they wanted more.
The customers were happy, and fewer packets went out that window. How many fewer? I don't remember exactly. What I do remember, is that after tracking our subsequent use of sauce packets, I discovered that the new policy was saving the restaurant about $2,000 per year. I later found a way to rework the schedule to save $15,000 annually on labor costs, while providing better customer service. These business expenses add up.
It's important to note that money saved is often pure profit. The owners made $15,000 more profit when my new way of scheduling saved them $15,000 in labor costs. To increase profits $15,000 from new sales, they would have needed $60,000 more in sales (after costs, profits are only 25% of sales in this particular business). In other words, finding ways to save money can be a powerful way to increase your profits.
One Way To Reduce Your Business Expenses
Of all the ways to save money, the first thing to try is to simply list everything that your business spends money on. Include even the toilet paper in your public restroom if you have one. Include everything. Now take each item and consider any possible ways you can spend less on it.
Write down the workable ideas and act on them. This is such a simple idea, but how often have you done it? If you have ever done this simple exercise even once in the history of your business, you are probably doing better than most business owners in controlling your business expenses.
How To Cut Your Business Expenses
Business Expenses - Track Your Admin Expenses
Business expenses need to be budgeted for when you are starting a business. These expenses are typically categorized according to type. One of the larger categories of business expense falls under the heading Administrative Expenses. These business expenses are those related to the day-to-day operations of the company.
It is important to understand these administrative expenses. When you are preparing your budget and pro forma statements you need to be aware of the options that impact each of these business expenses.
The first business expense to look at is payroll. Your business needs to be able to pay you. This business expense may be regular or infrequent but it needs to be budgeted for.
Next is business expenses related to telecommunications. These are items like cell phones, business phone lines, and Internet access.
Insurance is an important business expense in the administrative category. Here you need to consider business insurance, general liability insurance, casualty insurance and health insurance.
Health insurance is a huge business expense. Our recommendation when budgeting for this is: If you have a spouse that has health insurance try to stay on their policy. If COBRA is an option for you, try to arrange that. This is a very costly business expense so do your homework carefully.
Bank fees are a business expense that many people don't even think about. You should realize though that banks charge a fee to open a business account and the monthly fees are typically higher than for personal accounts.
A related expense is the fees charged by the credit card companies. These add up to huge business expenses as they typically charge at least two or three percent on each transaction. And many small-business owners absolutely love American Express, which usually charges even higher percentage fees.
Another large business expense item is professional fees. These are the fees you pay to your accountant and/or attorney to advise you on different stages of your business as well as other benefits.
Other common business expenses in the administrative category include:
Travel and Entertainment
Office Supplies
Vehicle Expense
The Bottom Line on Business Expenses
You need to understand and research every business expense when you begin the process of budgeting. The business expenses related to administration often get overlooked as they are not the obvious sales related expenses. This business expense category accounts for a large portion of your overall expenses so it is worth examining closely.
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