Fund management and budgeting is key to the stability of your business. There are many elements and aspects to master for a small business owner to achieve this: payroll, overheads, repairs, stock, and so on. What’s more is that each business will run a little differently. A physical store will have to decide which hours it's most profitable to be open for business to cut back on electricity costs, while an online store may require outsourced warehousing.
Thankfully, there are some tips that are universal, and will be of use regardless of the sector and style of your business. Read on for our guide on how to practise strategic spending to get the most out of your small business.
1. Cut back on small costs
You’re probably familiar with the stereotype of the miserly cafe owner who guards napkins like gold. Napkins are of course not worth more than a few cents each, but when you take all their expenses into consideration, it’s easier to sympathise. After all, napkins themselves do not bring in any money. So if you’re offering a luxurious dining experience with all the trimmings and not pumping up your prices to offset that, you’ll find that your business isn’t actually making too much money.
Using business credit cards for these sorts of seemingly negligible purchases will help you realise where these small, regular costs add up, and keep track of your purchases. They’ll also provide you with bigger loans than a normal credit card, which will give you some flexibility whilst you’re still working out how to cut back. Have a look at all your overheads, including fuel and cleaning costs, packaging, and anything you might normally handwave away. If any of them aren’t creating a benefit worthy of their cost, it might be time to cut them out, or to switch to a cheaper alternative – like ordering your groceries to be delivered.
2. Compare costs for outsourcing and inhouse
All businesses can benefit from outsourcing. Whether that’s an outsourced advertising team, outsourced asset storage, or outsourced customer support. The benefit of this isn’t just the convenience of skipping the hiring, firing, and organising of all these teams and equipment, but it’s often cheaper.
It might sound counterintuitive, but since these companies are large scale operations with teams working around the clock, they make more efficient use of their offices and technology, which in turn means they can offer lower prices. That said, not all outsourcing options will be cheaper if you’re thinking long-term, so calculate the inhouse costs before you make a decision. And remember that unless you make any solid commitments, you’ll be able to change your structures further down the road to suit your business better as it grows.
3. Calculate the return on investment (ROI) for your spending
Being a small business owner forces you to don many hats. You’re not just the chef or designer, but the advertising team, the accountant, and the financial advisor. One of the best ways you can guide your businesses finances is by calculating the ROI for all your sales and services. ROI – or Return On Investment – is essentially the amount you sell your investment for minus the amount you spent to buy or build or perform it.
But don’t just think that since you bought your ingredients for $10 and sold the finished product for $15 that your ROI is $5. You need to be more granular. What were the time and labour costs of going to the store to buy the ingredients, what were the transport costs, and how long did it take to bake? If you’re baking one cake an hour, $5 is far from a respectable ROI, so instead you would pivot to an item with a higher overall ROI like a tray of cookies with a $1 ROI for each individual item.
4. Explore ways to streamline your tasks
You can’t buy time, so be sure that you’re using it as effectively as you can. If you can save an hour of calculations by using an accounting program, then you’re sure to do it, but have you considered what else could be streamlined?
Nowadays, almost every task under the sun has a program to automate it. Invoices, order fulfilment, social media posting, and many more can be automated to save hours of your day and indirectly save money. Take some time to look at the many time consuming tasks of your business, and research which ones can benefit from automation tech or programs to streamline your operations.
5. Review your P&L statements each quarter
A Profit & Loss Statement (P&L) shows you the cold hard facts of your business. How much money came in, from where, and where it went. Rather than tossing it to one side, use it as your chance to pivot and strategise, and guide you through the next quarter – maybe the buyers won't pay more for your product, but the overhead costs are too high… so outsource your storage to a cheaper area or even country.
The more often you evaluate your business, the more fluid and adaptable your company will become, but quarterly reviews are the accepted standard. Use the strengths and weaknesses pointed out by your P&L to drill down on what works, and change what doesn’t.
6. Don’t forget to advertise
“Build it and they will come” is only true if they can see or hear it. But with many small businesses, you can be lost in a sea of content, websites, and competition. The solution is to find your target audience – a trendy restaurant may serve couples, while a cobbler may interest businesspeople.
Then, consider how to interest them. This might mean organising a candlelit night at your restaurant, offering a discount to influential members on your site, or holding pop-ups at related events. Attract people to your store, service or website; the more the merrier. Advertising may only get the customer through the door, but the more viewers you have, the more chances of converting that interest into a sale.
Conclusion
Strategic spending includes strategic buying, advertising, working, and practically every aspect of your business. But don’t be disheartened by its all-encompassing scope. It’s a one-step-at-a-time process that can start small – find a new wholesaler, offer some advertising students work promoting your business, or buy a bigger oven so you can bake bigger batches. So long as you’re actively trying to improve your business’ money movements, you’ll be finding places to improve.
