Being an entrepreneur and nurturing a business is a full time job. It’s much like having kids. You need to ensure that the business thrives and you need to do whatever you can to help it, without bankrupting yourself. Businesses fail – that’s a harsh reality. In fact, Forbes posted an interesting article on why entrepreneurs fail and the very second reason on their list is “ran out of cash”. If you don’t prioritise business expenses (that is ensuring that you don’t fritter away your cash on non-essential expenses), you are going to run out of much-needed cash flow.
If you need more proof of how easily a business can fail from overspending on the wrong things, we only need to turn to CB Insights. CB Insights provides a plethora of statistics that also point towards a lack of funds and overbearing expenses being some of the reasons why businesses fail, while still in their infancy. Just because the statistics are out there and they are true, it doesn’t mean that you have to become a statistic. You can do things a little differently. Perhaps you can learn how to prioritize expenses and cut out those that don’t quite “fit the bill”. Let’s take a look how.
5 Ways to Prioritize Expenses for Your Small to Medium Sized Business
Let’s jump right into exploring how to prioritize business expenses.
- Put revenue-generating expenditure on the top of your list.
If it’s a toss-up between the expense of attending an event that could result in sales and paying for an office revamp, opt for the money-making event. This should be your mind set at all times. Hold off on paying for expenses (or incurring expenses) that will not result in potential sales.
- Develop a growth plan strategically.
It’s important to note that your business falls into its own category of growth. Some businesses experience sudden growth due to demand and find that their business cannot keep up with production. In this case, the business would focus on prioritizing expenses that would lead to be increased production, such as investing in new equipment and hiring more staff members. Businesses that grow slow and steady might find that they are keeping up with production comfortably, but they want to step things up and start generating more income. To do this, equipment would be needed, but first marketing and advertising would have to come into play to warrant the amount spent. The growth strategy for this business would be to prioritize marketing costs over the purchasing of new equipment.
- Safeguard cash flow by seeking out SME business funding.
When a business is growing, cash flow is always at risk. Often, businesses make the mistake of buying too much stock or spending too much money which leads to the business coming to a grinding halt. If you have projects coming up that need funding, rather seek out SME business funding, so that the businesses’ existing cash flow can grow steadily. If you are worried about approaching the bank because of a less than perfect credit score, don’t be! There are unsecured business loans readily available online, and you don’t even have to approach the bank. You can typically borrow up to £500,000 (paid back over 5 years) and there are no set up fees and lengthy waiting periods to worry about either. The right unsecured SME business loan provider should be able to pay out the loan within 24 hours.
- Declutter your expense list.
This is probably one of the toughest things for you to do, but also the most rewarding. Often, entrepreneurs sign up for a service that they no longer require, but the debit order is still in place. Often, expenses are being paid automatically that the business has no need for. Print out your most recent bank statements and go through them with a fine-toothed comb. Make sure that everything you are paying for is warranted and a reasonable amount. Deactivate and cancel unnecessary services and expenses as you go.
- Negotiate better rates.
Forbes recently released an article on a few business expenses that just happen to be quite negotiable; and they aren’t wrong. Negotiation is a great tool in business. While you are going through your business bank statements, you will get a better idea of what you are paying for services such as rental, heating, cooling, telephone service, internet, printing and so on. Look at all of these expenses and see if you can cut back on these costs either by moving to a new service provider or negotiating better rates with your existing ones.
Last Word
Prioritizing expenses is important. It’s also a strategic move to ensuring that your business survives the good times and the bad. If you want to put your business in a better financial position, consider implementing the tips above. Good luck!
