Coaching for Action: A Framework for Making Profitable Small Business Expense Decisions
- by siteadmin
Being the owner of a small business requires attention to detail, quick decision making and often leaves little time for anything else. To strengthen your business, effective expense management is required to ensure that money goes towards furthering the business’ goals. However many businesses look at expenses in isolation without considering their place within the framework of overall profitability. This article will outline some key points on how to effectively manage expenses while remaining profitable so you can do more with your company than just get by with day-to-day finances.
However, it’s important to note that there are no hard and fast rules when it comes to managing finances as every business has different needs and requirements when it comes to deciding on what is an expense capital expenditure (CapEx). Both are important in the life of any company, but it is vital that you are able to tell the difference between them.
When looking to improve profits, many entrepreneurs focus only on the income side of the balance sheet without considering their expenses. However having a detailed understanding of both sides allows for better financial decision making which leads to improved profitability. When things get tricky, tracking your daily transactions will help you identify your best and worst performers so you can refine them while focusing on areas with little return. By logging all costs associated with business ventures organically rather than relying on isolated bookkeeping entries it allows easier analysis within Microsoft Excel or Google Spreadsheets which then leads to more informed decision making when it comes to budgeting for future expenditures. This way you can save up for larger purchases which will, in turn, lead to an increase in your return on investment (ROI).
A key point to remember for any entrepreneur is that successful businesses are built off the back of successful financial management. Not just by following a few “rules” you read online or via expensive business courses – but rather by making informed decisions based on data and research. To ensure your company is happy and healthy it’s important to categorize expenditures based upon their effectiveness so you can better use funds towards areas with greater opportunity costs. Successful businesses look at expenses as investments that have a degree of risk associated with them; however, low-risk activities that would yield high returns should always be prioritized over higher-risk activities that would yield lower returns.
For example, investing in advertising will make more money on average than spending on new hires but is a higher risk activity. On the other hand, hiring staff for a low-risk activity such as customer service means you can focus your efforts elsewhere while still ensuring things are running smoothly throughout the company. In order to ensure financial stability, it’s vital that you not only understand how profitable each of these activities is but also their rate of return on investment (ROI). This way, you’ll have no problem making the best possible decisions when it comes to improving your business and growing your income.
Being the owner of a small business requires attention to detail, quick decision making and often leaves little time for anything else. To strengthen your business, effective expense management is required to ensure that money goes towards furthering the business’ goals. However many businesses look at expenses in isolation without considering their place within the…