Businesses often die premature deaths. While their many reasons attributed to the fact, others crumble for silly decisions like the misconception “You spend money to make money”. If you are running your small-scale business or is an entrepreneur living by the advice, perhaps you should think twice.
In a business, it is very important to have a plan that allows you to funnel some of the profits you get back into the business. This will allow your business to run smoothly and gradually grow. However, some business owners just can’t help crossing over – using their business as an excuse to spend.
Overhead costs, or simply put, too much spending in a business, will render you trapped sooner than you think. Being a saver in a business is not always glamorous, and it definitely isn’t easy. But the eventual financial gains are big.
Of course, a few expenses like taxes, for instance, are helpful but it is a mistake to use that as an excuse to extravagantly waste more money, particularly if you are lying to yourself that you are spending it as professional expenses. At the end of the day, personal expenses and even tax deductibles take money away from your business or your profits, they don’t come back. As a result, you may not enjoy the profits or your savings at the end of a financial closing.
Sometimes, one can look at the gross revenue and think they can afford to spend. Well, focusing on maximizing the profit margins should be the priority. Don’t be sidetracked or blinded by your crushing of the financial goals based on the highest margin ever. You just might be doing the wrong thing.
Although it sometimes is true to spend in order to grow, always follow the line of smart decisions when it comes to the actual spending. Put everything into perspective, the goals, the projections, the budget, and the cash flow. In a nutshell, look at your profit and your profit margins.
Your profit is what remains with after paying tax expenses (which is unavoidable) and all other expenses that keep the business running. The profit margin is the percentage of the gross profit that you get to keep.
It comes highly recommended that you keep a tight business budget alongside looking for ways to cut back if you have a lot of money on the table. This happens when the gross revenues look incredible but the profit margin is 50 percent or lower.
Budgeting will ease the decision making and if you want to a lot more money than you want, it is the first step in the right direction. On a quarterly basis, make sure that you review the statements to determine the losses and the income profits to know whether you are headed in the right direction.
Take note of everything. Drop the obvious costs and those that you are uncertain about, keep track of them over to the next financial quarter. If they prove to be necessary, keep them, but if not, get rid of them. For the costs that keep the business running or those, you know cannot be eliminated, seek better deals from service providers or suppliers. Do a little survey to find cheaper options, it will come in handy.
Ultimately, although it sounds tedious, mind the expenses so that you can increase the profits and not just your business’s revenue. This is a vital move if you want to leverage your proprietorship for wealth growth.