Are you losing control of your expenses? Are you in a constant battle of deciding which bills to pay first and which bill to wait because you are always short in cash again? Do you feel paying yourself is unthinkable due to the numbers of your bills?
Every business makes purchases in one form or the other. How often do you hear the phrase, “It’s tax deductible!” so go ahead and spend it. It may be true to a certain extent because not all of your expenses are tax deductible and some expenses are only partially deductible (please consult your Tax Accountant for specific). Nonetheless, just because those expenses are tax deductible it doesn’t mean you have to spend on it. For every dollar you do not spend, you get to keep it in your business. Businesses incur expenses for various reasons. Some help increase your revenue while others help you run your business.
However, regardless the reason of your business expenses, if you have come to a point that even your increasing of your revenue can never seem to satisfy your bills, you have a problem. You are in business to generate profit so that you and your family could live from it, not for you to be a slave to your vendors, and creditors. So, what should you do when you are faced with this situation?
One way to do it is to take a look at your current Profit and Loss Statement and compare your expenses to your gross profit. It should give an idea on the percentage of each expense category. From here, you will have to drill down into the total of each category to see which vendors make up that category. Analyze your spending pattern and purchases that you made for your business. For example, how did those expenses help you in the business? Can you tie them to the amount of revenue you generate? Once you get the idea on which expenses were not contributing much, you will need to consider cut down them down.
Unfortunately, certain expenses are tied to a contract. If that should happen, it’s best to consider the penalty before breaking of the contract. Even though it is hard having to forgo some of those expenses, at the end of the day, your business will be healthier and you will be happier because leaner operating cost means more profit for your wallet. True, you have to pay taxes for it but you only pay only a fraction to the amount you did not spend which means you take home the rest.