Small business owners quickly learn to be thrifty and careful with expenses, closely monitoring cash flow. But even so, many are surprised to learn that they’re actually wasting money, or at the very least, letting it flow out of the business, in dribs and drabs, largely unnoticed.
Experts say that wasting money, or being unaware of exactly where it’s all going, is one of the most common reasons small business owners find themselves in tight, cash-strapped positions. But there are ways to stop the leaks: Financial advisors, CPAs and business owners themselves have numerous suggestions for not wasting money, based on keen observation and first-hand, down-in-the-trenches experience.
Right off the top, Yahoo Finance lists five ways your small businesses is wasting money:
- POS equipment. You’re probably renting credit card processing equipment, but you might save money buying it. Ditch the paper-based statements for digital ones.
- Reusables. If your business is brick and mortar, try tapping into the recycling trend—shelving, equipment even signage.
- Sub-leasing. Another popular trend involves sub-leasing a portion of your footprint to another compatible business. Even the biggies like Target and Macy’s do this.
- Going green. You may need to bring in a consultant and shell out a bit initially, but things like solar panels and new windows can save you in the long run.
- Inventory repurchase. If you haven’t already explored this with vendors, try to negotiate sending back unsold merchandise—at a minimum, after the holiday shopping season.
But these are just the tip of the iceberg. The amount of discussion online would indicate that wasting money is a common, but huge, problem among small businesses and often happens in subtle ways that business owners don’t suspect. What’s also striking is how many different business areas/departments/activities can hide money wasters and how unexpected many of them are! When The Wall Street Journal (wsj.com) recently asked the question, Where do small businesses waste the most money?, a number of business experts weighed in, and the results were interesting. See if any of these sound familiar:
- Paid advertising, especially print. Shift to online advertising and social media.
- Space and equipment. Most businesses have more than they need; many need only the basics.
- Budget creep. It’s hard to stay on budget, but going over can spiral out of control.
- Getting the spend right on talent. Eager to build on someone’s corporate expertise, small businesses often overpay—only to find out later that this expertise doesn’t even translate to the small business world. Conversely, small business owners can be guilty of scrimping on salaries—a move that is penny wise and pound foolish. Example: Hiring a bookkeeper, not an accountant.
- Excess inventory. Across the board, business owners estimate the amount of cash they need to run their businesses. One of the biggest culprits in tying up cash is keeping too much inventory on hand.
- Stick to core strengths. Business owners only think they’re saving money when they’re doing all the tasks themselves. It’s important for owners to be busy working hard on (building) the business, not in it. Hire people to do the rest.
- Replace underperformers early. It’s never fun, but someone not doing the work is keeping you from hiring someone who will. Don’t drag your feet.
- Be thrifty, and put tight controls in place. When you’re building your small business, no expense is small; they all add up. Resist the temptation to spend unnecessarily—and justify everything, no matter how small.
- Think of your money as your own. Too often, the business’s finances are an abstraction. If you—and your employees—get in the habit of regarding the business’s money as your own, you’re more likely to be conservative, spending cautiously, tracking meticulously and being accountable.
This isn’t an exhaustive list by any means. There are plenty of money wasters out there, some of them hiding in plain sight, like bank fees, shipping costs and subscription charges. Use this list as a way to start examining every aspect of your operation to tighten or eliminate any money leaks. The savings can be staggering!
In fact, the real point may be that this needs to be an ongoing process or perhaps a semi-annual or yearly audit. Money wasters, after all, have a way of showing up quietly, disguised as absolutes or great ideas! Another area where you need to be on the lookout for these sly wasters: When you get financing, have new working capital in hand and are flush with cash. The rules go triple here: Work out your spending plan ahead of time and don’t veer off plan. Track every cent. Hold yourself and everyone else accountable. By the same token, don’t be shortsighted by foregoing or delaying spending on things that are needed to move the business forward. Just do it wisely.
Image courtesy of scottchan/FreeDigitalPhotos.net
Have you found money wasters in your business? What steps have you taken to eliminate money leaks?