Nothing in business is free, unless it’s freemium or a free trial. This is why every business owner, every business coach, and every guru will tell you to keep a close eye on your overheads, especially since your profitability determines your business’s success.
But have you fallen foul of thinking that it’s only the larger expenses that you should be tracking?
While it’s true that you should track your large expenses, what happens to the little ones? After all, they don’t just disappear, and the coffee in the break room doesn’t appear through magic.
Once you can grasp these smaller expenses and understand where your money is going, you can start to rein them in and bring them under control.
What are cumulative expenses?
Cumulative expenses occur when all these small expenses accumulate into a single, substantial outlay over time. You might not notice it happening within your business, or think that it’s not a big problem because the expenses are small.
However, take the following example:
You pay £5.00 per week for software A and £50.00 per month for software B, and you also spend £25.00 per month for coffee pods for the workplace. These three small payments have now added up to £95.00 per month, or £1140.00 per year.
Even in this example, where there are only three small expenses, it’s clear to see that the effect still adds up into a large payment, and that’s exactly what happens when it comes to submitting your accounts at the year-end.
Now, imagine your business is attempting to stay competitively priced, so you’re working with tight margins. Have you factored in these small expenses when creating your pricing strategy? These small expenses could be eating into your profit without you being aware of their cumulative impact.
Common expenses to be aware of
While every business is unique, there are common small expenses that many businesses face, and gaining insight into these can help you increase your profitability.
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Unused equipment - paying for a top-of-the-line phone with multi-line functionality, call transfer, and conference call capabilities sounds like a dream come true. But is it really worth it if you’re the only person in the business, or you only receive two calls a month? While the saying goes, “It’s better to have it and not need it, than need it and not have it,” this line of thinking can lead to your business becoming cluttered with unused equipment that eats away at your profit margin.
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Bank fees - between business bank accounts that charge monthly fees for usage, transaction fees, card processing fees, overdraft fees, interest fees and cash handling fees, your business could be seeing monthly bank fees that quickly add up. Because of these fees, you should be careful when choosing your business bank account to ensure the fees you’re receiving are as low as possible.
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Incidental costs - these small costs, such as coffee, tea, milk, biscuits, and car parking fees, can quickly add up. If you’re making it to the end of the week and wondering where that £20 has gone, you might need to have a look at your incidental costs.
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Monthly subscriptions - as your business needs change, you may find that you’re using new software with features more aligned with your specific needs; however, don’t forget to cancel your old subscription. If your old subscription continues to run, you’re paying twice for the same functions.
How can you take control of your small expenses?
Now that you have an idea of the small expenses your business faces and how they can accumulate into larger expenses, you can start to take control of them.
Track all of your expenses
In business, everything should be tracked, and that means everything. No matter how small and insignificant the item may be, if it has been paid from the business account, you need to be able to account for where that money has gone.
Once you’ve tracked everything and categorised it correctly, you can see where the money has gone and whether you need to cut back on any of your expenses.
Set spending limits
If you have high incidental costs and have tracked them, consider implementing spending limits on these expenses. For example, rather than buying a daily white chocolate iced whipped latte, you could limit this to a once-a-week treat and have a standard iced coffee the rest of the week.
Just as small expenses can accumulate into large ones, small changes like these can have a significant impact in the long run.
Review recurring payments
If you see a recurring payment leave your account, check to see whether you’re still using the service it’s connected to. You might find that you’re no longer using the software, or that you don’t need the full functionality and can be moved onto a different, cheaper plan.
Once you’ve got a handle on the smaller expenses, you might find that your profitability starts to increase along with it.