You have to spend money in order to make money. Even the start of a business is marked with this principle – you have to have capital in order to start your business up and buy the products you are going to sell, package your service properly, and pay the people who will help you with running your day-to-day operations.
Your spending still has to be controlled, of course. Caution must be exercised in order to make sure that you are spending only on what is necessary, and are not being too relaxed with your own budgets.
Remember that it is not just money that you are disbursing in a business – you have to consider the time and energy you are spending as well. Balancing these will form the perfect economy in your profits and your overall satisfaction after a hard day’s work.
Here are some philosophies to help you manage your business expenses in the wisest manner:
1. Exhaust all possible resources before buying heavy equipment, or outsourcing other services
It is understandable to have marketing expenses in the beginning phase of your business, as you are building your brand. However, as a guiding spending principle, make do with what you have first, and when you’ve exhausted all of your resources, only then should you consider buying or outsourcing. This especially applies to long term assets such as heavy equipment, vehicles, land, or a building. Make sure that your sunk costs do not wipe out your capital, or can at least be covered by your monthly collections.
If you can, make do with second-hand equipment in the beginning. You don’t need everything to be brand new at this time as long as it works and gets the job done. When you’ve saved up enough to invest in new gadgets or vehicles, you can decide if it is still worth it as opposed to taking out a loan just to answer for your investment.
2. Have a good cash flow management system
Your liquidity is very important in terms of assessing how much money you have on hand to buy required materials, pay your employees and suppliers, answer for rent and utilities, and cover other regular expenditures.
Make sure your cash flow is managed well. You should have reasonable payment terms with your customers, be able to collect invoices in a timely manner, and ensure there isn’t too much debt accruing needless interest. If you can, extend your payment terms with your suppliers for as long as possible, so long as it’s feasible and judicious for the both of you.
3. Invest in a spend management system
Do you have employees that submit receipts of their expenditures at the end of the month for your finance team to review and approve? This can be a very taxing activity on your company, and it can be avoided with the proper spend management solution.
Spend management is a process that helps designate and custom-fit each of your employee’s spending on corporate matters. The merchant they are paying, the activity that they are engaging in, the merchandise they are buying, and the budget are all allocated.. You don’t need to review these after the fact, as the assessment and approval happens in real time when the transaction is being made.
This saves a lot of time, money, and energy for the employees in your company, as well as the relationships that you all have with one another, as automated approvals reduce friction and streamlines the process from the outset.
4. Spend only the money that you have on hand
Avoid taking on loans. This helps you live within your means as a business owner, and motivates you to work for your money, instead of taking the easy way out. Loans may be reasonable for your overall strategy, but when you take one any time you are short on cash, you may just be increasing your interest expenses, which won’t help your overall pragmatic philosophy.
These are some of the best tenets to keep in your mind as you run your business and seek to manage your budget. When these are at the core of your decision-making process, you are assured peace of mind as you continue with your day-to-day operations.