A mid-year expense evaluation can provide you with valuable insight as to how your business is making money and how you’re spending it. Taking a closer look at your finances can reveal things you never knew about your company’s finances, and where you need to plug potential holes in your expenses. Here’s more information on what to evaluate when performing your business’s mid-year money check-in.
Labor is probably the biggest expense for your business, and if your employees aren’t measuring up to certain standards, you’re throwing away your money. We set standards as business owners to ensure that we’re paying employees fair wages, based on what they can do and how well they perform in their area of expertise. If employees aren’t measuring up, it’s time to take a look at how this really impacts your finances.
Let’s say you’re paying someone $50,000 per year for a high-level job that requires a lot of work. This employee has continuously failed to meet goals throughout the year; causing other employees to have to pick up the slack and help do their job. Not only is this detrimental to the cost of keeping this employee on the payroll, but it can cause serious frustration and extra work for other employees.
If someone on the payroll isn’t measuring up, perform a review twice per year and give them goals to reach. If they continuously fail to meet those goals, and you just don’t see an end in sight, it may be time to consider seeking out a new person to fill that position.
Fixed and Variable Expenses
Every financial review should include both fixed and variable expenses. Fixed expenses are things that don’t change month-to-month; such as your building’s rent or mortgage payment, or the financing for the company vehicles. Variable expenses vary according to use. This includes things like phone bills, utility bills, etc.
Fixed expenses should always be deducted from your gross income, and variable expenses should have a budget that will help keep costs to a minimum. Since variable expenses are so flexible, ensure you have a fixed ceiling on these expenses; in other words, an amount that they absolutely must not exceed. Deduct this from your monthly gross for a more accurate picture of your net income.
Marketing Costs and ROI
Marketing probably accounts for a large portion of your budget, as it should. Marketing is essential to the continued growth of your business; keeping current customers engaged and potential customers aware that your brand exists.
While marketing is an essential component, so is ensuring you’re getting an ROI from it, or a return on investment. If your marketing expenses are high, but you’re not seeing an influx or are seeing a drop in customer interaction, you’re not getting an ROI. This can mean it’s time to take a closer look at your marketing efforts and decide what you can do to improve brand awareness and attract new leads.
If you perform in-house marketing, it may actually be more affordable for your business to hire an outside marketing firm with proven results. This will help ensure an ROI for your marketing efforts and guarantee that what you’re paying for can produce the results you want. Take a look at this article about how marketing firms can help your business.
While you’re performing your mid-year money check-in, make sure you’re accounting for all of your tax-deductible items. You’ll want to save receipts and invoices for all of your company’s expenses throughout the year, no matter how small or trivial they may seem.
Anything you can claim as a deduction will help you recover some of your business’s expenses, putting more money back into the business account and creating more opportunity for growth. Don’t underestimate expenses like gasoline and mileage for company vehicles, or even office supplies like printer ink and paper. Anytime your business incurs an expense, save a record of said expense; so when you file your taxes, you’ll have an easy-to-access collection of expense reports.
Have you incurred any new expenses since the beginning of the year? Perhaps you decided the business would need a video conferencing solution? Any new costs that have come about since your last money check-in should be accounted for and added to your monthly expenditure list. This includes new phones, vehicles, legal expenses, financial advisors, travel expenses, and more.
If you’ve switched to different materials for your products that cost more, you’ll want to document those as well for when you file your taxes. The best practice when you’re in business is to simply document everything. The more documentation you have, the better. Accuracy is essential for filing your taxes, as any errors can come back to haunt you in the form of fees or penalties later on.
Your mid-year expense evaluation should include everything your company spends money on, including labor, materials, office supplies, marketing, etc. Be sure to make a thorough and accurate report so you can take a detailed look at where your money is going. The more accurate the report is, the better chance you’ll have at trimming down expenses where necessary and maximizing your net profit. Don’t forget the little things, and remember, document everything!