16 BUSINESS TIPS 4 expenses that can get out of control in business DURING THE TRANSITION from a oneperson operation to what some might describe a ‘proper’ business, most businesses tend to go through a period of growing pains where expenses can blow out, but revenue does not grow at the same rate. There are 3 common positions small businesses find themselves in: 1. Solo owner: This could be a tradesperson or a professional services provider, possibly operating out of their home. They employ no one and have limited costs. Under this model, you should be looking to keep 90% of your gross profit. 2. Typical small business: The owner gets too busy and hires one or two people to help run the business. 3. “Growing” business: You invest in the right people to free up time to focus on just three things — developing high value customers, identifying and selling new products and services, and leadership and strategy implementation to drive the business forward. This means you may need: 1. A general manager 2. A proficient administration team By Troy Marchant, Director, Adviceco Chartered Accountants 3. A sales team 4. Customer service people 5. A full time marketing resource Many business owners in position 2 above should either revert to position 1 or take the bold step to move up to position 3. Getting stuck in position 2 is a major reason why many businesses ultimately fail. Costs creep up, you get too busy servicing existing customers and there is no resource available to drive new revenue. So….here are 4 expenses that can blow your business budget 1. Wages – ‘on the wrong people’ This can be a killer. I know an extremely well regarded and talented cabinet maker who operated as a sole trader for many years. He was always busy, with a bulging order book created from word of mouth. Then, he decided to hire someone to help him who was hopeless. Of course, all of the hidden on-costs of employing people are what catch business owners out. 2. Rent If you are renting space and need to do so, look for opportunities to renegotiate your rent on more favourable terms. Look around your town or suburb — many have empty shop fronts right now, indicating that it is not a strong market for landlords. Irrespective, many landlords will push you hard for increased rent in the hope that you won’t push back. 3. Advertising and marketing When businesses gear up for growth, they tend to invest heavily in advertising and marketing. I have seen this expense creep up significantly over a three- to four-year period without a commensurate increase in revenue to justify the spend. My recommendation is to break down all of your spend in this area into specific campaigns. How much new business does each generate, and what is the return on investment? 4. Travel expenses Hire new people, give them autonomy and freedom to make decisions, send them off to develop new markets — and watch this expense go through the roof! It is important to set some parameters. 5. Accounting fees Final thoughts…expenses have a habit of creeping up on you. It is good discipline to review them line-by-line once a year and make a determination as to whether you are getting the absolute best return on investment for each expense. A cost audit is a great place to start. You might be surprised at the level of needless expenses and the savings you could make by renegotiating some costs — or, indeed, the increased revenue you might see as a result of increasing some expenses that show a great return. A proactive accountant can help you with this review as well as providing advice on your cost structure in general. PS – thank you to Rob and Karen last month with some questions on business restructuring for asset protection. Email your questions to troy.m@adviceco.com.au CENTRAL COAST BUSINESS REVIEW DECEMBER 2024
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