Top 3 Cash Leaks in Small Businesses and How to Fix Them

Money down the drainJust as most homes leak heat, most small businesses leak cash. And just as homeowners can fix most heat leaks themselves (a good can of caulk and a little time usually does the trick), small business owners can do certain things to cut down on pointless expenditures.

Every small business consultant recognizes that reducing wasted spending is an important first step in improving a company’s performance. After all, those dollars and cents add up to money that could be invested in timesaving technology, innovative new employees or trainings to sharpen your firm’s competitive edge. However, most business owners simply don’t have the time to research where their organizations are bleeding cash.

If you don’t have a strong understanding of how your business spends and makes money, outsourced bookkeeping for small businesses is a good place to start. Bringing in outsourced accounting services will help you get a basic view of how your organization is performing and just how much money is being lost.

When it comes to bookkeeping for small businesses, here are some of the most common cash leaks and how to remedy them:

1. Inflated Salaries

Use your company’s financial data to determine whether you can afford to hand out raises or whether your profits will support bringing on a new employee. Small business consultant and author of Simple Numbers, Straight Talk, Big Profits!, Greg Crabtree recommends that you subtract your non-labor costs for the last year from your revenues for the last year. (Of course, this assumes that your spending on non-labor items will not increase.) This number represents the amount you can afford to spend on labor. Spending any more would make your company unprofitable.

2. Ineffective Marketing Practices

To maximize the effectiveness of your marketing campaigns, include your campaign goals and strict budget limits in any marketing agreements. Have a specific plan that includes your goals for the campaign. Once the marketing blast has ended, measure your ROI based on new customers, increased sales or whatever metrics you hoped to improve at the campaign’s onset. Don’t be afraid to turn down marketing gurus if their products didn’t meet or exceed your goals in past partnerships.

3. Sky-High Personal Expenses

Especially for small business owners, the line between personal and business expenses can be fuzzy. Wise bookkeeping for small businesses includes paying the owner a livable wage. Owners should then pay their household bills out of their paychecks. In other words, keep your company’s earnings separate from your personal expenses. Finally, you may choose to bring in outsourced accounting services to analyze the amount of spending you can afford on travel, dining and other marketing expenses.

Professional small business consultants or for-hire services like outsourced accounting can make a huge difference in getting you on the right track. Their help lets you stay focused on the reason you opened your business – to make a living in a way that’s fun, rewarding and profitable.

[ photo by: Images_of_Money ]

About the Author Barb Fisher

Barb is the CEO of Fisher Bookkeeping, an outsourced bookkeeping consultancy that provides small businesses with a full-service financial department. Her favorite aspect of work is to break down the accounting to meaningful bits, so entrepreneurs can make a powerful difference in their own business. She's also a power lifter (squat: 215, DL: 270).

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1 comment
Clemente Hussian says October 3, 2011

Very well-written story. It will be supportive to anybody who uses it, including yours truly :). Keep up the good work – for sure i will check out more posts.

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