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“Let’s meet for coffee”
Everybody loves meeting someone or many people for a drink. Possibly the most common is a cup of your favourite brew. This is a legitimate reason to do business and network with important connections, but it can get out of hand. These “business meetings” often become just a general, friendly chat without any business discussed. They become more and more frequent and these expenses add up rapidly. The result is a huge entertainment amount of money in the financial statements which looks out of place. This throws up a red flag asking to be audited by the relevant authorities.
2. Not planning what you spend
Everything needs a plan when spending money. Paying creditors / suppliers is one of them. When you do not plan what you are spending, you are looking for disaster and will start to throw money away in late charges etc. Certain expenses will always be there. Rent and salaries are examples. These happen on the same day every month so you can plan them accordingly. Other payments like creditors can also be planned in the terms of your agreement with them. You can agree to pay them on 7, 14 or 31 days after receipt of invoice or completion of job etc.
The most planning has to be with the “bigger” spends. Buying more machinery, for example. These purchases involve large sums and therefore need to planned ahead. If they are financed, you need to do the calculations ahead of time. Do they require extra money to install them?
There are innumerable factors and variables in the planning process but the main word here is planning.
3. Getting into debt
Here is a scenario. Your cash flow is not what it should be this month, the money is just not coming in as you expected. This has been happening for a few months now. You decide to get a loan. This is where you may be wasting money. Never get into debt when the solution is simple and possible. You can do this once but when it becomes a habit, money is spent on interest rather than the business.
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Latest cars
Much like cell phones, many businesses and people in general, MUST have the latest car. This involves a large amount of money that is spent. This is a vicious cycle to get into. The more expensive the car, the more money is wasted on the interest. The biggest waste of money is the balloon payment at the end. There is no (realistic) need to have the latest and greatest car before everybody else has it.
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Rent
A place is critical. In order to have this space, money has to change hands. This can either be as payment on the owning of it or the rental of the space. This is a regular expense, also called an overhead, at a fixed amount. Why are you throwing away cash here? Do you need as much space as you have? Are you paying market related rates? Should you buy your own space instead of paying rent?
6. Accounting Software
Everyone know it costs money to run a business. Accounting software is included in the expense. It is also forgotten about and then too much is spent on it! There is massive debate over online and off-line accounting software and it really does not matter which you choose. I say this because they all do the same thing in the end. The overspend occurs when you buy software which far outweighs what you actually need. This can be likened to buying a expensive car when you only need a family hatchback. They both do the job but one is costing far more. You may ask “What difference does it make?” I would answer, “it is the difference that makes the difference”.
These are common areas where businesses overspend and throw money away when it is not necessary. The solutions are simple and can make a difference almost immediately.