Understanding where your money’s going when running a business is essential for reliable cashflow, and forecasting. And with the current financial unrest, you may be questioning what bare minimum business costs are needed to continue offering an excellent service.
One of the ways you can make identifying essential business expenses is by asking yourself, do I need it, or do I want it? Is the expense in your accounts considered a cost or an investment? I often comment that if you no longer consider it an investment, then it might be time to consider removing it. For example, are premises an investment for your people, your market positioning? Or is your entertainment an investment in customer recruitment or retention?
Working out where to cut costs and perhaps reinvest that cash into growth strategies isn’t always easy when you have numerous, seemingly vital expenses for the day-to-day running of your business. The aim of this article is to help you identify those costs which are considered essential in the running of your business, so you can either save money, or reinvest it elsewhere. These expenses can be thought of as a need:
Essential business costs
Depending on what type of business you own, you may find you have many of the following expenses. Of course, if you work from home, or are a sole trader for example, they will differ:
- Physical premises: offices, shopfronts, studios, warehouses etc
- Utilities: gas, electricity, water, waste.
- Technology: hardware, software and licenses, website & hosting, and more
- Vehicles: purchase/lease, maintenance, tax, insurance
- Industry/sector specific legal documentation: licenses, permits etc.
- Equipment: purchase, lease, upgrades
- Stock: purchase, delivery, storage
- Business insurance and taxes
- Employees: wages, benefits
- Professional services: lawyers, accountants, brokers etc.
- Office supplies: furniture, stationery
- Marketing: branding, website development, advertising, outsourcing
- Contingency spending: unexpected cost of emergencies – staff illness, hardware damage, loss of stock and more.
I suspect you will rarely find the next ‘shiny thing’ on your essentials list?!
Non-essential business costs
As a startup you may be willing and able to run your business on reduced costs, choosing free versions of software for example, but as you grow that may change. These business costs might be considered non-essential to start with and could be classified as a want, rather than a need:
- Higher level accounting packages
- Social media scheduling dashboards: Hootsuite, Content Cal, SocialBee etc
- Outsourced resources: bookkeeping, copywriting, sales teams
- Premises: Can you utilise occasional co-working/meeting room hire instead of a full time office?
- Staff: Can you continue as a sole trader?
- Training: Your own, your staff
- Networking: meetings, social events
- Staff benefits: Health insurance, perks, rewards.
When the business grows to a point when these ‘wants’ become needs – staff, outsourcing, and software packages for example, that’s the moment when you’re ready to make a step change and become an investor in your own business.
Are you ready to make that change? Have you made that step change one of your goals in business? If so, let’s have a conversation about how to go about it. I offer a free business mentoring session, so that’s one expense you don’t have to consider!