February 19, 2021

How to Effectively Manage Business Expenses

Scott Steinberg

Futurist and Keynote Speaker, AKeynoteSpeaker.com

Learning to effectively manage business expenses is an important skill for any small-business owner. It’s especially important to hone before challenging times such as recessions or periods of ongoing economic upheaval. Thankfully, there's a growing number of business expense strategies and technology to help you minimize headaches—and stay one step ahead of bills and creditors.

“Thanks to skyrocketing growth in financial technology (fintech) and online payment solutions, it’s never been easier to manage [business expenses],” says David Thomas, executive director of online programming at the University of Denver. “As ever, the key is being smarter about how you choose to apply these tools, and more strategic when it comes to finding ways to make them work harder for you.”

Finding time-saving ways to manage business expenses will only become more important going forward, says Thomas, as market realities (and many businesses’ cash flows) look poised to remain increasingly uncertain in coming years. It’s also crucial to make tackling these tasks a priority, he says. 

Business Expense Management Made Simple

“The best way for any business to manage expenses is to start by creating a budget,” explains Dave Reinhart, a certified public accountant with Smoker Smith & Associates PC. “Investing a little time up front to put one together can help you more effectively manage cash flow and keep an eye on where and when you’re spending.”

In addition, he also advises setting up online bill payment solutions to save time and effort, and using free tools offered by your credit card provider to consolidate expense reporting and tracking of vendor payments. Above all else, says Reinhart, it’s important to keep an eye on cash flow at all times and take the time to prepare a backup plan in advance, just in case money ever gets tight. “An ounce of prevention here can far outweigh a pound of cure,” he says.

Which Bills Should I Pay First?

If you’re tight on funds, and wondering which business expenses to prioritize, it helps to remember that no two bills are created equal. Some can be deferred, others negotiated, and still more won’t leave any room to budge.

"In today’s high-tech world, it’s true that you’ve got access to a plethora of online tools, apps and services that can help as a business owner.

But tools alone won’t mean much if you don’t know how to successfully use them."

—Dave Reinhart, CPA, Smoker Smith & Associates PC

Should you find yourself coming up short for the month, a good first step is to call to creditors to negotiate a payment plan and make a minimum payment (if possible) in good faith. If you’ve been a good customer in the past, some will look to find practical ways to work together to help you navigate your way back. “I encourage businesses to have open conversations with vendors and credit departments,” says Reinhart. “Understanding their expectations can help you make smarter financial decisions when things get tight. Remember that vendors want you to be successful too, and that means working together to create win-win relationships whatever the future brings.”

That said, if you’re still coming up short, it can help to prioritize business expenses payments in the following order, categorized by descending importance:

• Taxes: Payroll taxes, sales taxes and income taxes can be garnished, or business assets seized, if taxes are left unpaid.
• Payroll: People can be your most important asset and it’s important to keep their paychecks coming, especially as employees can bring more business through the door.
• Outstanding Payables: Bills over 60 days due can incur significant interest penalties and put both your credit score and future financing capabilities at risk.
• Rent and Utilities: Prompt payment is important to keep the lights on and avoid eviction.
• Key Vendors: If you owe balances on outstanding inventory or services, it’s important to get them paid in a timely fashion to maintain incoming inventory and preserve valuable business relationships.
• Secured Debt: Any items that you have personally guaranteed should be paid as quickly as possible before running the chance of being repossessed.
• Insurance Premiums: Letting insurance lapse means taking unnecessary risks.
• Unsecured Debt: Outstanding sums require a court-ordered judgment or ruling before collection occurs. However, don’t forget that interest penalties and late fees can add up quick.
• Other Expenses: Professional dues, advertising costs, nonessential maintenance, etc.

Smarter Ways to Save and Manage Business Expenses

Worried you’re spending too many hours in front of a spreadsheet? “A growing array of online-connected, artificially-intelligent and automated solutions can make business expense management, processing and tracking online payments simpler than ever,” notes Josh Levetan, founder of home and commercial A/V contractor LV Pros. “As a result, small businesses like ours can now move money wherever it needs to go (and make sure it gets there) quickly and affordably while still balancing their books with a minimum of hassle. When it comes to doing things like handling payroll and processing vendor invoices, these solutions have proven to be a huge time saver.”

These simple business expense strategies can help your business manage its money more effectively going forward.

1. Automate Payments

A growing number of online apps, plug-and-play software tools and turnkey template technology solutions now allow you to quickly and cost-effectively offload many routine bookkeeping tasks to artificially-intelligent software helpers. These solutions (which are typically offered in pay-as-you-go or subscription format) can help you quickly balance your books, stay on top of common expenses and see where money is coming from and going on a regular basis. They also offer predictive and monitoring capabilities that can help you anticipate incoming or outgoing cash flows, identify common expenses or frequent cost centers and spot areas ripe for cost elimination or savings.

2. Go Paperless

Myriad free and paid software apps also allow you to significantly reduce documentation and paperwork by scanning and uploading receipts, automating invoice processing and payment and offloading expense collection and reimbursement to computerized assistants. Using them can help you keep more accurate records, share these records instantaneously with colleagues and reduce the need for physical document storage and manual review. You can additionally streamline many time-consuming workflows and hand off otherwise demanding tasks to smart technology tools, which can handle the entire process of billing and expense management with minimal manual prompting.

3. Boost Credit Facilities

If your credit history allows, it pays to keep an open credit card or two (and spare line of business credit) handy to help with making big purchases or covering sudden, unexpected expenses as they arise. While you don’t necessarily have to borrow against these credit facilities, it’s important to have the flexibility to draw on these added funds as needed. As you go about reviewing possible options here, be sure to consider interest rates, payment terms and the best ways to keep expenses associated with these revolving lines of credit to a minimum. This may mean having to automate or alternate payments, use a more affordable line of credit to pay off another preexisting one, or refinance or switch financial providers from time to time as needed.

4. Renegotiate Payment Terms

Challenging times can present opportunities to renegotiate with suppliers, vendors and creditors who may find themselves in a similar situation. If you find yourself in a cash crunch (and ideally before), reach out to your partners and look for ways to create more flexible payment plans, or keep impending expenses at bay temporarily. For example, providers might elect to extend your credit and payment terms, offer deals and discounts on large purchases or lump-sum payments or allow you to purchase goods in smaller quantities or at reduced prices. In any event, if you find yourself experiencing financial difficulties, your first call should be to your creditors. Many of them simply want to get paid as well, and they’ll often be happy to work with you to find practical ways to draw down expenses and bring your accounts back to compliance.

5. Computerize Inventory Management

If you’re in the business of manufacturing, distributing or reselling physical goods, numerous artificial intelligence (AI) and analytics tools can help you rightsize inventory needs and predict how much stock to keep. These tools can help minimize expenses associated with overhead, shipping and other common costs, while also helping to avoid tying up funds in excess purchases. These high-tech solutions can also help you pivot to a more on-demand operating and sales model, allowing you to keep risk levels and up-front investments to a minimum.

6. Embrace Fintech Tools

Aside from software that helps you automate business expense management and go paperless, there are numerous financial technology (fintech) apps and tools that can help you move money between creditors and accounts faster and more cost-effectively than in the past. Using them, you may be able to easily pay bills online, setup recurring payments and reduce the expenses and aggravation historically associated with migrating funds between accounts and dealing with service fees or international conversion rates. 

7. Capitalize on Cost Savings

While you may admittedly prefer to sign up to access third-party services or goods in pay-as-you-go installments, many vendors also provide significant discounts if you elect to sign up for annual or monthly service and subscription payments. Likewise, numerous vendors will also provide helpful price breaks on one-time purchases if you purchase goods or services in predefined quantities or make a larger down payment up-front. Whichever route you choose to go, take time to consider and calculate which payment options offer the greatest potential savings, and just how much of vendors’ offerings that you plan to use in coming months.

8. Maximize Your Benefits

Your credit card can offer you instant cash-back savings, purchase rewards and special money-saving offers from vendors. These perks can help reduce costs on everything from business flights and hotels to new computers. Before applying for a new card, take time to sit down and budget your operating expenses to see what categories of goods or services that you are spending on most frequently. 

As you can see, managing business expenses doesn’t have to be especially time-consuming, expensive or difficult when you simply make a point to apply a little bit more ingenuity and forethought. While finding better ways to balance the books isn’t always the most exciting or engaging task, taking a few hours plot the right approach to money management can be one of the most rewarding efforts you can pursue, and potentially save you thousands (or tens of thousands) in the end.

Likewise, it’s important not to beat yourself up if you find yourself struggling to make ends meet from time to time. “Managing money is not an easy task—I’ve seen very successful people struggle with it,” says Reinhart. “In today’s high-tech world, it’s true that you’ve got access to a plethora of online tools, apps and services that can help as a business owner. But tools alone won’t mean much if you don’t know how to successfully use them. Perhaps most important of all here is to have hard financial goals in mind, commit yourself to them, take time out to learn the process of expense management, and consistently work to make the best of any financial situation.”

Photo: Getty Images

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