There are many ways in which we justify spending that has no utility or practical application. There are entire classes of expenses that are truly wasteful in a business, while there are other ways in which we inflate the money spent beyond what is practical. Let’s look at the ways you are wasting money in your business and how to curtail or end that wasteful spending that directly hurts your bottom line.
1. Not Negotiating Or Bargaining
Too many business owners look at business expenses as a set cost. They don’t try to negotiate utility prices or their rent, though they should. They look at business expenses as a tax deductible expense, so why try to lower it? Yet the reduced costs have several benefits. First and foremost, it reduces the constant cost of running the business and thus improves the odds your business will stay in business if income is reduced.
Second, reducing these costs improves your profit margin, which makes your business look better when you need a loan or investors. Third, there are other deductions you can take like charitable giving through the business or buying equipment that has a direct impact on profitability instead of overspending.
There are other ways to reduce expenses like actively trying to reduce the cost of everything you buy. Use a site like 7 Coupons to find coupons you can use to spend less. You probably try to find coupon codes before buying something online for personal use – do the same on 7 Coupons for business purchases.
2. Trying To Maintain An Image
The phrase “keeping up with the Joneses” refers to buying things not because you need them or even want them but because it makes it look like you’re as good as the Jones family next door. Unfortunately, this happens in business, too. It occurs when you lease an expensive new luxury car for every sales representative instead of a good looking used vehicle. You waste money when you pay too much to rent office space in a “hot” market or building with a reputation instead of a more affordable venue close to your customers. Buying fancy office furniture instead of practical furniture is another example.
Look at what you need and go for what is good enough instead of justifying purchases because “we deserve the best” or “our customers expect this”. Look at what the market truly justifies instead of trying to maintain an image your customers may not even care about compared to the costs you have to charge them to pay for these costs.
Debt can be seen as paying too much tomorrow for what you wasted money on yesterday. Yes, sometimes debt is necessary in order to finance equipment or real estate purchases that help the business long term. Too many business owners, though, see interest payments as a good deductible business expense and then over-spend because of this.
They’d be better off financially if they saved money for several months and then paid cash instead of financing the debt with interest. And they’d certainly have a stronger financial position as a business if they didn’t overspend because the loan made it feel like free money. This is why businesses that grow slowly and spend wisely because they have limited cash on hand tend to stay in business while people who respond to a sudden cash influx or line of credit with a spending spree are more likely to go out of business.
When you overspend to maintain an image, take on debt that is unnecessary or neglect to minimise business costs, your business is wasting money. These factors can be interrelated, such as when you think you that trying to cut costs or negotiate a lower rate looks bad or you justify overspending because the debt payments are tax deductible.