If you’re a small business CEO looking to maximize your company’s profit and create sustainability, then one of the very first things you should do is examine your spending.
You’ve heard the saying in fitness – you can’t outwork a bad diet. Well, the same applies in business – you can’t out-earn poor spending habits.
Let’s take a look at three important reasons you should periodically examine your business spending.
Reason 01. Maximum tax deductions
The IRS defines allowable business expenses as ordinary and necessary costs incurred to operate your business. That means the expense would be common in your business’ trade or industry (”ordinary”) and not incurring the expense might affect your ability to carry out your business (”necessary”).
Questions to Ask:
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Is this expense necessary for me to run the business?
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Is it likely that a similar business would incur this expense?
This alone will help you to determine if an expense contributes to your risk of being audited.
Reason 02. Business continuity
Business continuity means having a plan for your business to continue operations without interruption amidst difficult situations, such as the loss of a key client, staffing shifts, disasters, economic hardships, etc.
Questions to Ask:
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What operating expenses are essential to running the business?
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What team members are essential to running the business?
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How long can we sustain our current operating expenses before triggering our business continuity plan actions?
Part of ensuring the continuation of your operations means understanding the baseline cost of your operations. It can help you determine how much cash to keep on hand to cover expenses and/or what the baseline revenue goal should be to cover expenses.
Reason 03. Maximum profit
Your job as the CEO of your business is to manage the operations of the business and drive profitability. You are solely responsible for its success. After all, you set the strategy that everyone else in the organization follows.
Questions to Ask:
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What is our operations spending?
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How much does our team cost?
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What amount of marketing spend produces the greatest ROI?
You must have a keen understanding of the numbers and how increases/decreases in each area of spending affect profitability.
As you work to chart the path to success for your company, I hope that you’ll consider these questions in your plans for minimizing taxes, maximizing profitability, and creating a sustainable business.