Cash Flow Awareness: How Small Expenses Make a Large Impact
To improve cash flow we often focus on the larger goals that produce higher dollar revenues. Which means we don’t consider the small expenses because they are harmless.
Specifically, small expenses are considered to be harmless because what’s a $1 here or $60 there when your business is generating so much more?
The answer is, a lot.
What if I told you that the small expenses could make a large impact on your cash flow? What if I told you those small unnecessary expenses could be the difference between your company making a profit and breaking even?
Here are examples of small expenses:
Checking account fees
Bank overdraft fees
Monthly subscriptions – LinkedIn, online software add-ons
Company sponsored happy hours and meals
Networking events or memberships
Google or Facebook Ads
Much of the above are necessary expenses. However, they can also become unnecessary if they are unused or unmonitored.
Let’s use a real life scenario to put this into context:
A small business client generated over $400,000 in revenues in 2016. Their 2016 expenses were about $395,000.
Here are a few of their unnecessary small dollar expenses:
$340 per month from bank overdraft fees
$60 per month for a LinkedIn Subscription - The client has not set up a profile for over a year
$40 per month for an unused QuickBooks payroll subscription - Handwritten checks are provided to their employees
$500 for 20 networking unattended events
$580 per year for a BNI group. Unfortunately the client was asked to leave because attendance was poor, which happens
$400 per year for a Chamber of Commerce
$1000 per month for Google Ads (10 ads at $100)
Adding those expenses together, that client spent $18,760 in 2016. Remember, that number does not include all unnecessary small expenses.
Maybe $18,760 is peanuts for some of you. However, when your business is close to breaking even, it is easy to see how small dollars can make an impact.
Poor cash flow management is one of the top reasons why small businesses fail, and there are too many small businesses out there operating without knowing where their business stands, despite having financial software. The unfortunate thing is, these businesses are in their first or second year, which are critical years for survival.
Strong piece of advice: please use your financial software to help with keeping proper records of financial transactions and to monitor the financial health of your business. If you, as the business owner, lack the time and knowledge for this effort, strongly consider hiring a bookkeeper, tax advisor, or a certified public accountant.
Remember, even small expenses can make a large impact.