How to effectively manage business expenses and improve profitability
Effective expense management is key to driving profitability in any business.
Whether you’re a small start-up or an established company, keeping a close eye on costs can be the difference between thriving and just surviving.
Here are some practical strategies to help you manage your business expenses to improve your profitability.
Track consistently and review regularly
The first step in managing business expenses is knowing exactly where your money is going. Set up a system to track every expense, no matter how small.
Cloud accounting software like Xero or QuickBooks can automate some of this, but the important thing is consistency.
You should regularly update your records and categorise expenses properly, for instance:
- Utilities
- Marketing
- Travel
- Phone bill
- Rent
- Training and development
Remember to schedule regular financial health checks, these could be monthly or quarterly reviews where you analyse all of your outgoings.
You should look for any expenses that have increased over time, like subscription services or software licences.
Are you still using them, or could they be downgraded or cancelled?
A thorough review will allow you to cut these extra unnecessary costs.
Separate business and personal finances
One of the most common mistakes small business owners make is mixing personal and business expenses.
This can lead to confusion and difficulty when it comes to filing your tax returns, as you make it hard to demonstrate to HMRC that certain costs were incurred solely for business purposes.
Opening a dedicated business bank account is typically a practical solution as it ensures clear separation, making it easier to track and control your business outgoings.
Use technology to automate tasks
Investing in the right technology can help you save both time and money.
Automation tools for invoicing, payroll, and bookkeeping reduce manual labour, lower the risk of human error, and free up valuable time for your core business activities.
While there’s an upfront cost, the long-term savings in efficiency and often for compliance purposes, typically make it worthwhile.
Implement a budgeting system
Creating a budget for your business is essential for accurately tracking financial health.
A clear budget helps you identify areas where you may be overspending and ensures that money is being allocated to the most crucial parts of the business.
It also helps you set financial goals and monitor whether you’re on track to meet them.
Take advantage of tax reliefs and allowances
You should never overlook the potential savings you can make through tax reliefs and allowances.
In the UK, businesses can benefit from a variety of reliefs, including Research and Development (R&D) tax credits, the Annual Investment Allowance (AIA), and business rates relief.
Consult your accountant to ensure you’re taking full advantage of these opportunities to reduce your tax bill.
Always negotiate
You shouldn’t assume that supplier’s prices are fixed, there is usually some flexibility.
If you have built a strong relationship with them or have been one of their long-term clients, you might be able to renegotiate terms. If you can’t, it might be time to shop around for a better deal.
Whether it’s office supplies, utilities, or contracted services, many businesses can lower costs by simply asking for discounts or bulk rates.
Other things to consider
There are several strategies available to help manage and reduce your business costs. Here are a few more ideas to consider:
- Reassess office space needs – Could you move into a smaller office space?
- Encourage a culture of cost-consciousness – Do you really need to print that document?
- Optimise stock levels – Do you often over order products?
- Offer incentives – Could you give clients a discount for paying invoices early?
By tracking and reviewing expenses, negotiating with suppliers, leveraging technology, and utilising tax reliefs, you can take control of your finances and maximise the potential for growth.
For tailored advice and guidance, working with an experienced accountant can help you streamline your expense management and ensure long-term success.
Contact our team for personalised advice on the financial management of your business.
