Keeping Control of Your Costs Is the Secret to Growing Your Business
Sometimes running a business is about the big picture and having a grand vision. At other times, running a small business is about the little things. Budgets are often considered little things, especially if they deal with details like utility bills and not important items like research and development. Stop for a moment and consider this though – if you save money on your utility bills because you stick to a budget, you’ll have more money for research and development, marketing, product placement, and the like. The fact is, creating a detailed budget is one of the smartest steps you can take to improve the financial health of your business.
Controlling Overhead
A budget is about control, but when it comes to overhead many people feel that the costs are simply out of their hands and thus not worth worrying about. Nothing could be further from the truth. Overhead includes everything from rent to utilities to insurance and vehicle expenses. You have a lot of leeway in how much you pay for these common overhead items, so use the influence you do have to save money.
It is true that budgeting for overhead can be a bit complicated because they are operating expenses and thus seem untouchable. It is true that many of the things on the list above are essential, like lighting, but they aren’t untouchable. While you may not be able to cut these things out of your budget entirely, you can almost certainly trim them down to size. To get a grip on how reasonable your operating costs are, calculate an Overhead to Annual Sales Ratio.
Overhead to Annual Sales Ratio
To determine this value, just divide overhead costs by annual sales revenue to get a number. This percentage is going to tell you how much of your sales is going into running the business. While your total overhead may rise each year, as you generate more sales and need more resources to do so, overhead as a percentage of sales should remain fairly consistent. Tracking this number from month to month is a great way to keep tabs on your expenditures.
Monitor Problem Areas
When it comes to runaway overhead, there are a few areas that seem to be problematic for all businesses. Telecommunications, advertising, and utilities are three expenses that can creep up year after year because you don’t always have direct control over them. Sure, you may get a little lax in monitoring the lights in the office, but it’s just as likely that your energy supplier is raising its prices faster than average. If you keep track of overhead, you’ll know when these costs are getting out of hand.
There are two things you need to do with problem areas. First, monitor your use. If you find that long distance phone calls or mileage on vehicles have ballooned in a given year, then investigate to find out why. It may be a legitimate expense, but it may also be a change in behavior or policy that needs to be addressed.
The second thing to keep track of with problem areas is competition. Telecommunications, vehicle maintenance, electricity and more can be provided by many companies. Be sure to shop around, using websites to do a business energy comparison, cellular phone comparison, and so forth. If the company you regularly use isn’t competitive, either negotiate a better rate or find a new company to do business with. Even if your overhead isn’t rising, periodically investigating the competition may open up new ways to save.
Keep Tabs on Your Business
Running a business is hard work that requires you to master a number of different skill sets. Budgeting is one of the most important skills you can develop as a business owner because a budget may be the difference between success and failure. In business, sometimes it pays to focus on the little things and a budget allows you to do that efficiently. The best part about a budget is that it puts you in control and provides an early warning system. When things start to slip, you’ll not only be the first to know, you’ll be the first to know why. That means you can do something before it is too late. Budget now to protect your business in the future.
Harry Lawrance is an experience writer and has been blogging about business and effective budget management for a number of years.
Category: Business
