Managing Expenses in an Uncertain Time

The stock market has become very volatile and unemployment is holding steady…at a high level.  Are we in for a boom, a bust, or business as usual? These are all questions that can keep an entrepreneur up at night.

Two things are certain. First, for a business to grow the bottom line there are basically three things that can happen. Sales can increase, margins can widen, or expenses can be reduced. All of these are difficult to master. Which one do you think is most important? Second, when it comes to expenses, there are many arguments for both having to spend money to make money or expensing your way to a profit. Is there middle ground here?

No matter what theory you adhere to, every business should have some kind of expense control in place.

Why is expense control important?

Poor expense practices melt away gross profit dollars, reduce net profits, and take away potential capital funds- funds that can be used to produce more income or to support better prices against competition.

On the other hand, sound expense control enables a business to realize maximum return from its total investment and leads to a stronger, leaner operation- one which is equipped to be competitive and to grow in a tough, demanding marketplace.

What is good expense control?

It is a matter of spending money thoughtfully for planned results. Not spending haphazardly. Good expense control means being ready to cut or drop an expense the moment it becomes non-productive. It also means being willing to increase an expense if it will lead to a proportionate increase in revenue. In short, it involves a watchful program of balancing expenses with the results they produce.

What is expense management?

The kind of expense control described above requires more than just ordinary control measures practiced at the level of a department manager or employee. It requires managing expenses, and this is the province of the business owner.

The owner should study each expense as an investment; they should establish policies for the expense, determine budgets, set limits, assign responsibility for implementing these things, and, then, they should evaluate the results afterwards.

What are the techniques for managing expenses?

Expense management involves the same functions as virtually any other management task. Thus the overall techniques should be familiar; they merely need to be applied to managing expenses.

These functions are:

ANALYSIS…….Study past performance to determine future potential

PLANNING……Establish goals and the steps needed to achieve them

POLICIES……..Establish clear-cut guidelines for everyone to follow

ASSIGNMENT..Assign authority and responsibility for each action

EVALUATION..Measure results and determine additional improvements

So no matter what happens, if the economy grows and people go back to work, or unemployment grows and the economy hits a bump, the bottom line is this—-expense management is of utmost importance, but just another cog in the wheel of entrepreneurial disciplines, along with sales, cash flow, customer loyalty, etc., etc.

How do you manage your expenses? Please share your best practices.

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