Creating a great product and using it to consistently grow your revenue streams is a key aspect of building a successful business, but what about managing expenses?
Managing expenses is critical. Even well-funded companies typically operate with a budget and need to make choices about where they invest their limited resources.
Planning a successful budget is about allocating limited resources. A little forethought to align your expense management strategy with your budget in advance can go a long way to make the budgeting and expense management processes painless.
Let’s take a look at how to align expense management with your budget in real-time.
Make Sure Your Budget Fits Into the Business Goals
Although it’s slightly trite, the old saying “it takes money to make money” isn’t an empty platitude. To build a successful business, you’ll probably need to spend some money.
But determining how much to spend and on what can be a challenging process. It often helps to begin by defining your main business goals and working backward, defining what you’ll need along the way to make those goals a reality.
Knowing that your expenses directly connect to your business growth can make it easier to keep expenses in check. If your expenses contribute to the following three items, your budget probably fits into your business goals.
Increasing Cash Flow
Consistent, positive cash flow is a must for most businesses. Make sure you’re spending on activities that generate high returns in the form of more revenue or lower costs.
- Genuine product improvements that customers or users have validated can lead to better product adoption rates.
- Systems and processes that allow your sales and customer acquisition teams to operate more efficiently can mean generating more leads with the same team.
- Investments in internal process improvements could increase your cash-in through better accounts receivable (A/R) management or reduce your cash-out through better accounts payable (A/P) processes.
Exploring New Marketing Strategies and Channels
Much like it’s hard to generate wealth by saving in your personal life, focusing only on reducing expenses and “saving” in your business won’t drive growth and won’t bring much success.
You’ll need to make sure to dedicate the right amount of your resources towards growth. Setting aside some funds each month to experiment and explore new marketing channels can generate considerable payoffs in the long run.
Building a successful team that can deliver products that delight your customers is a further success factor.
Keep in mind that getting the right people together can mean more than summing their talents. The right people can be multipliers. Just be careful about hiring too quickly and prematurely ballooning your payroll.
Determine the incremental level of staffing you’ll need to reach your goals, both on the product and marketing sides. Then arrange your personnel cost budget accordingly.
Use an Expense Tracking App (like Expensify)
Apps can help businesses in multiple ways.
Always having actual spending vs. budgeted numbers at your fingertips can also give you peace of mind and a sense of control. They can provide real-time expense tracking to let you keep tabs on your current situation. Often, you can drill down into that real-time data to get details on what’s impacting the key metrics.
Successful expenses management also involves defining a clear set of rules for employee expenses claims. Decide in advance what expenses are reimbursable and which are not, including types, amounts, and thresholds.
Ensuring that everyone is clear on the rules ahead of time can reduce or eliminate misunderstandings with employees. While you don’t want them to run up the company’s tab on personal expenses, you also don’t want your employees to feel taken advantage of.
Work with an Accounting Partner who Understands Tech
Building a successful business requires more than simply growing your customer base. You need to keep your expenses in check too.
Efficient use of cash is critical for any business, especially a startup. If expenses are growing faster than revenue, it will be challenging to sustain profitability.
However, this isn’t to say that expenses are evil. To build a successful product and grow your business, you’ll need to spend on activities that drive your business toward your goals.
Product improvements, hiring a team, and business acquisition activities are all crucial to driving business growth.
The ability to manage expenses in real-time can help you stay in control of your business’s profitability. Expense tracking apps and an accounting partner who understands startups and tech can make expense management a breeze.
Founder’s CPA helps startups and small businesses develop comprehensive budgets (that account for growth, investment funds, and other business goals). Plus, they track expenses and deliver reports to empower owners to better manage that budget.
If you’re ready to get a handle on your startup’s expenses, set up a free consultation with one of our startup accounting experts.