Financially speaking, there are a number of ways small businesses can fall through the cracks. Your company might be just large enough to necessitate competitive benefits but only have a handful of full-time employees. Maybe your work is sufficiently complex that it requires highly trained individuals, but it doesn’t keep them busy full time.
Knowing where to look for cost savings and how to organize internal processes is difficult for any small business. Fortunately, here are three straightforward ways your small business can improve its financial standing.
1. Start Simple, Upgrade Later
Employee benefits are a tricky thing to manage. You want to provide competitive options to attract high-quality employees to your company but not go overboard and break the bank. Before you start looking at gym memberships and child care offerings, start with the basics. Determine the budget you have to work with and use that amount to provide the most value to your staff.
Unsurprisingly, the benefits that usually top employee wish lists are health care and retirement. If top-tier retirement plans are out of your price range, explore other possibilities.
If you are unlikely to make discretionary matches to your company retirement account, you can likely get by with a SIMPLE 401(k). This type of retirement plan gives your employees real value by requiring employer matching contributions, but it has fewer regulations. One of the major benefits is the lack of tax return and cross-testing requirements, which are very costly.
If your business later experiences increased revenue, making more cash available for additional contributions, you can upgrade to a small business 401(k). This plan type allows greater flexibility with regard to discretionary or profit-sharing contributions and other specifications such as vesting.
2. Don’t “Wing” Accounting
Accounting and bookkeeping are areas where little mistakes can have big consequences. Depending on where the error(s) occurred, you could be facing an easy fix or thousands of dollars in interest and penalties. Despite this, business owners are often tempted to cut costs by handling the company finances themselves. Or worse, they hire an under-qualified individual at low wages and later find the books in a tangled mess.
Even a single bookkeeping error can have a massive impact on the state of your monthly financial statements and balance sheet. For example, you might someday run into a situation where your bank is bought out. If this happens, there is a decent chance you will be assigned a new account with the purchaser. An inexperienced bookkeeper might record the new bank account with an opening balance without closing out the balance of the old account. If this happens, your balance sheet will show duplicated funds between the two accounts.
Having a grossly incorrect balance sheet may not seem like a big deal since it’s not the “real money” in the bank. However, it can be a major problem if you use these financial reports for tax preparation. Alternatively, you could unknowingly present false data if a buyer is looking to purchase your business and requests financial data.
If your company is still in its infancy and cannot afford an in-house accounting professional, outsource this task immediately. Not only will you have more compliant and organized financial records and filings, but you also gain resolution support.
Let’s say you are attempting to do all your payroll in-house, and a quarterly report is misfiled. Whether it’s your fault or the government’s, you still have to resolve the matter with the IRS or state authorities. Depending on the situation, you could be looking at rounds of correspondence stretching over months or even years. In addition to being very reasonably priced, most third-party payroll providers will handle correspondence and issue resolution with authorities on your behalf.
3. Root Out Useless Spending
Just to be clear, there is a difference between useless spending and frivolous spending. Frivolous spending involves buying overly expensive versions of things you need or simply buying things you want (e.g., a high-end espresso machine). Useless spending, in contrast, is throwing away money on things you don’t use or receive no benefit from.
One of the biggest useless spending culprits is unused software subscriptions. Since subscriptions are typically set up through autopay, it’s very easy for them to fly under the radar. Not only that, but no information indicating who owns the subscription shows up on monthly banking or credit card statements. Because of this, you could easily have former employees still racking up monthly charges on software that no one is using.
To combat this phenomenon, maintain a spreadsheet with all subscriptions and their owners. Verify once a year that everyone is still using all the subscriptions they’re signed up for. Also, be sure to make subscription cancellation or reassignment part of the process when an employee leaves.
Advertising is another area rife with useless spending. Maybe you take a shotgun approach to marketing and do some SEO work along with two radio ads and a mailing campaign. If you aren’t tracking how your customers discovered you, it will be impossible to gauge how effective your methods are.
Let’s say 80% of customers find you through your SEO efforts, but 60% of your marketing costs are related to radio ads. If that’s the case, your radio ads aren’t delivering value relative to your spending and can be decreased or eliminated.
Value Above All
As with many things in life, business financial processes and priorities have few universal rules. One rule you should adhere to, however, is placing an emphasis on spending in areas that provide value and decrease liability. If your company’s spending habits are in line with this mindset, you’ll set your enterprise up for financial success.