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Accounting can help you to reduce your Business Expenses

Table of Contents

Starting and running your own business is tough. There are so many things to deal with – your products or services, marketing, employees, customers and of course, expenses. Expenses are the money your business spends on things it needs to operate. These could be equipment, office space, salaries, advertising etc.

What Are Business Expenses?

Business expenses are costs or payments made by a company to carry out operations and generate revenue. They are a natural part of doing business.

Some of the most common business expenses include:

  • Inventory – Money spent to manufacture or purchase goods to be sold. This is usually one of the largest expenses.
  • Marketing – Includes costs of advertising, promotions, and social media marketing to build brand awareness. Vital for acquiring customers.
  • Payroll – Salaries, wages and benefits paid to employees. Needed to retain skilled talent.
  • Rent & Utilities – Costs related to office space, electricity, internet etc. Essential for business operations.
  • Office Supplies – Small but frequent costs like stationery, printer ink, cleaning supplies etc.
  • Equipment – Things like computers, furniture, machines purchased by the business.
  • Insurance – Premiums for coverage related to assets, health, liability etc. Provides financial protection.
  • Legal & Professional Fees – Lawyers, accountants, consultants needed for services and advice.
  • Repairs & Maintenance – Regular upkeep of equipment and facilities. Avoid bigger repair costs.

Controlling Costs

While business expenses are required investments, controlling them judiciously helps balance costs versus returns. Tracking expenditures, creating budgets, and auditing helps manage them.

Cutting crucial expenses like marketing or payroll to increase profitability may be counterproductive in the longer term. The focus should be on eliminating wasteful spending through smart management.

Why Managing Expenses Matter

Managing your expenses properly is super important. If your spending keeps increasing unchecked, your profits will get smaller. Then your business will find it hard to grow and survive.

You need to closely monitor where money is being spent. Look for wastefulness or inefficiency driving up costs. By controlling expenses, you can directly boost your margins.

How Accounting Helps

Accounting is the process of recording and tracking all financial transactions of a business. This includes sales, costs, profits, taxes etc. An accountant creates reports using this financial information.

Business owners use these reports to make good spending decisions. With proper accounting, you gain visibility into the company’s expenses and can manage them better.

Let’s look at some simple accounting practices that help lower your business expenses.

Track Expenses Daily

The first step is to track all your business spending carefully. Make note of every small and big expense daily. You can do this using a spreadsheet or accounting software.

This will give you clear visibility into where your money is going.
You’ll spot spending patterns over time.
This makes it easier to identify unnecessary costs.

For example, you may notice you spent a lot last month on overnight deliveries. Tracking helps you catch such expensive habits early. You can then try to optimize these costs through better planning.

Review Expenses Regularly

Simply tracking expenses is not enough. You need to review them regularly, like every month.

Look at each expense from the past month closely.
See if they helped your business or not.
Check for duplicate or incorrect charges

Finding these issues through audits can lead to huge savings. For instance, you may catch a vendor double-charging for services accidentally. Or find old unused software subscriptions you forgot to cancel.

Centralize Finances

Managing all business finances from one place also reduces duplicate costs.

Use accounting software that imports expenses automatically from your bank account, credit card etc. This gives you one dashboard to view all spending in real-time.

Centralized systems prevent mixing personal and business expenses. It improves tracking and control of where the money goes.

Create Expense Budgets

Finally, use past expense details to create budgets for each spending category. For example:

  • Inventory purchases – $5000 per month
  • Office supplies – $500 per month
  • Salaries – $20000 per month

A budget decides how much you will spend on different items based on past patterns. Your goal should be to create budgets aligned with business priorities and needs, not just previous years’ spending.

Proper budgeting helps you allocate money to the most critical areas efficiently. It also prevents overspending and ensures you stick to financial targets.

Real-Life Examples

Let’s see how two fictional businesses used these accounting strategies to control expenses and boost profits.

The Green Garden Company

Green Garden provides landscaping services in Dallas. The owner Jennifer tracked all expenditures for six months.

  • This revealed high last-minute delivery fees were eating into profits.
  • Employees were charging many personal Uber rides to the business.

Jennifer created rules to limit last-minute delivery requests. She also enforced policies on using business accounts.

These steps based on studying expenses saved Green Garden $6,000 per year. The money could now be invested to grow the business.

Play and Learn Daycare

James runs a network of daycare centres in Los Angeles called Play and Learn. During a detailed expense review, he realized:

  • Many software and newspaper subscriptions were inactive but still being paid for monthly.
  • Equipment like toys were purchased frequently without checking current inventory. This led to duplication.

By cutting unused subscriptions and optimizing equipment buying, Play and Learn saved $10,000 annually. Such savings directly helped James expand by opening two new centers.

Conclusion:

In summary, properly managing expenses through accounting provides many benefits for businesses. Tracking spending daily and reviewing finances regularly provides visibility into wasteful patterns. This allows costs to be optimized by limiting unnecessary charges and duplication. Centralized accounting systems also help avoid errors. Analytics then enables creation of effective budgets aligned with operational needs. As the examples showed, even modest savings from controlling expenses can directly boost profits. Overall, accounting gives owners the tools to make informed spending decisions that lower costs substantially and improve the bottom line. With expenses accounting for half of outlays typically, these strategies can go a long way in facilitating business growth.

FAQS

How often should you review expenses?

Reviewing expenses monthly or quarterly helps identify problem areas early before they spiral out of control. More frequent reviews may be needed during peak seasons.

What are some big sources of uncontrolled expenses?

Common problem areas include last-minute shipping fees, duplicate subscriptions, and equipment purchases without considering current inventory.

How can accounting help spot duplicate payments?

Accounting software that integrates with bank accounts and credit cards can automatically flag duplicate transactions. This eliminates accidental double payments.

What expenses should a new business track from day one?

For new businesses, track every single expense meticulously starting day one, no matter how small. This establishes good practices early and highlights major expense drivers.

What are the key benefits of expense budgeting?

Budgets based on past data help allocate limited funds smartly as per business priorities. They prevent uncontrolled spending and help map expenses to revenue.


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Pranav Modi

Mr. Pranav Modi, CA is supported by 12+ years of Consulting, Auditing and Accounting practice across diverse sectors.

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