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December 20, 2018

Expense Management: What Your Expenses Say About Your Business

Mike Michalowicz

Author, Profit First

Summary

Your business expenses and expense management strategy are a reflection of where your company is today and where it could be heading in the future.

If you listen to entrepreneurs talk, you'll hear a lot about different business priorities, goals and needs. Talk, however, is cheap. It's easy to talk about big plans, but when the time comes to pony up the money and look at expense management, that's when it gets real.

Sit down and go through all your business expenses. What do they reveal about your real priorities—the ones you're actually willing to spend money on? And are there any warning signs you might derive from expense analysis?

Expense management can help you find the answer to those two questions, and give you insight on the following:

Commitment to Quality

I don't know a single entrepreneur who started a company just to be adequate.

We all say we want to deliver excellent service and results. We say we want to be the best. We say we want to improve. But is that desire reflected in our expenses and expense management?

When I see a business with expenses for education, training and skills development, I know I'm looking at the real deal. I find that business owners who want more than just “good enough" are willing to spend money on training and education in order to set themselves apart from the competition.

How you track your expenses may also be mirrored in how you actually spend your company's money. 

New techniques? Refining or stretching skill sets? When business owners are passionable quality, they make these types of investments.

A Plan for Growth

I'm not a complacent person by nature, and neither are the entrepreneurs I know. We're not satisfied with just plugging along, maintaining the status quo. We crave growth!

How is growth revealed through expense management?

If you're spending a healthy amount on marketing, you're investing in bringing in new clients and growing your brand. If I see a company without any expenditures for marketing, that's a warning sign to me.

In most markets, if you're not growing, you're dying. New clients, new revenue… These are the things that keep a business vital, healthy and inspired. If you're actively seeking new customers, you're probably spending some marketing dollars.

Messy vs. Organized

Another important point about expense management: How you track your expenses is telling, too.

If you sort your receipts into folders (physical or virtual) once a week, you're more likely to be organized and on top of things. If your accountant or bookkeeper dreads your visit—what with its avalanche of crumpled, unsorted slips of paper—then you're probably letting some expenses slip through the cracks.

How you track your expenses may also be mirrored in how you actually spend your company's money.

If you're disorganized, take a careful look at your spending habits. Are big purchases planned and researched, or are they the result of an impulse? It's one thing to spend a little of your personal money on frivolous purchases, but business expenses are different.

Commit to spending your company's money deliberately and wisely. Sure, you might be able to “get by" with lackadaisical record keeping and purchasing willy-nilly. But a little discipline may serve you well and help you become more profitable.

Meals and Entertainment Warning

Racked up significant business expenses categorized as meals or entertainment in the past? You need to pay attention. The Tax Cut and Jobs Act passed in December of 2017 has major tax implications that will affect you.

Previously, a percentage of expenses considered entertainment could be deductible expenses for your taxes. No longer! Sports tickets, golf outings and other business outings are no longer deductible expenses.

Likewise, meals that had previously been 100 percent deductible as a business expense are now only 50 percent deductible, and will no longer be deductible at all after 2025.

If you'd been living it up on the company dime, writing off meals and entertainment all over the place, you're going to need to have a heart-to-heart with your accountant to fully understand how this category of expenses will work moving forward.

Drawing conclusions based on your business expenses and expense management isn't magic. It doesn't require clairvoyance or a crystal ball. It's human nature to prioritize what matters, and that's reflected in what we spend our money on and how we track purchases and expenses.

As we near the close of 2018, it's natural to reflect on the past year and even make resolutions for 2019. I encourage you to take better control of your expense management in the coming year. Consider exercising some discipline, tracking spending more carefully, keeping track of your receipts and investing some of your money in genuinely improving your company and how it operates.

Read more articles on cash flow.

Photo: Getty Images

If you listen to entrepreneurs talk, you'll hear a lot about different business priorities, goals and needs. Talk, however, is cheap. It's easy to talk about big plans, but when the time comes to pony up the money and look at expense management, that's when it gets real.

Sit down and go through all your business expenses. What do they reveal about your real priorities—the ones you're actually willing to spend money on? And are there any warning signs you might derive from expense analysis?

Expense management can help you find the answer to those two questions, and give you insight on the following:

Commitment to Quality

I don't know a single entrepreneur who started a company just to be adequate.

We all say we want to deliver excellent service and results. We say we want to be the best. We say we want to improve. But is that desire reflected in our expenses and expense management?

When I see a business with expenses for education, training and skills development, I know I'm looking at the real deal. I find that business owners who want more than just “good enough" are willing to spend money on training and education in order to set themselves apart from the competition.

How you track your expenses may also be mirrored in how you actually spend your company's money. 

New techniques? Refining or stretching skill sets? When business owners are passionable quality, they make these types of investments.

A Plan for Growth

I'm not a complacent person by nature, and neither are the entrepreneurs I know. We're not satisfied with just plugging along, maintaining the status quo. We crave growth!

How is growth revealed through expense management?

If you're spending a healthy amount on marketing, you're investing in bringing in new clients and growing your brand. If I see a company without any expenditures for marketing, that's a warning sign to me.

In most markets, if you're not growing, you're dying. New clients, new revenue… These are the things that keep a business vital, healthy and inspired. If you're actively seeking new customers, you're probably spending some marketing dollars.

Messy vs. Organized

Another important point about expense management: How you track your expenses is telling, too.

If you sort your receipts into folders (physical or virtual) once a week, you're more likely to be organized and on top of things. If your accountant or bookkeeper dreads your visit—what with its avalanche of crumpled, unsorted slips of paper—then you're probably letting some expenses slip through the cracks.

How you track your expenses may also be mirrored in how you actually spend your company's money.

If you're disorganized, take a careful look at your spending habits. Are big purchases planned and researched, or are they the result of an impulse? It's one thing to spend a little of your personal money on frivolous purchases, but business expenses are different.

Commit to spending your company's money deliberately and wisely. Sure, you might be able to “get by" with lackadaisical record keeping and purchasing willy-nilly. But a little discipline may serve you well and help you become more profitable.

Meals and Entertainment Warning

Racked up significant business expenses categorized as meals or entertainment in the past? You need to pay attention. The Tax Cut and Jobs Act passed in December of 2017 has major tax implications that will affect you.

Previously, a percentage of expenses considered entertainment could be deductible expenses for your taxes. No longer! Sports tickets, golf outings and other business outings are no longer deductible expenses.

Likewise, meals that had previously been 100 percent deductible as a business expense are now only 50 percent deductible, and will no longer be deductible at all after 2025.

If you'd been living it up on the company dime, writing off meals and entertainment all over the place, you're going to need to have a heart-to-heart with your accountant to fully understand how this category of expenses will work moving forward.

Drawing conclusions based on your business expenses and expense management isn't magic. It doesn't require clairvoyance or a crystal ball. It's human nature to prioritize what matters, and that's reflected in what we spend our money on and how we track purchases and expenses.

As we near the close of 2018, it's natural to reflect on the past year and even make resolutions for 2019. I encourage you to take better control of your expense management in the coming year. Consider exercising some discipline, tracking spending more carefully, keeping track of your receipts and investing some of your money in genuinely improving your company and how it operates.

Read more articles on cash flow.

Photo: Getty Images