Whether you’re in charge of the budget for your company or if you’re being asked to work as a consultant and evaluate a company’s spending, it’s important to be able to identify where costs can be cut and see what money is being spent where. Most businesses (and individuals) overspend and inaccurately calculate the necessary costs for their company. It’s vital for a company’s success to be able to periodically step back and evaluate the current costs and spending of the business.
Do some research
No matter what industry you work in or where your business is located, there’s an average amount of money that certain services and business functions will cost. Find out what’s average for your industry and location and then use this information to see if you’re spending an average amount on different services and other costs.
Get it all in one place
In order to make evaluating spending easier, make sure your expenses are all in the same place. Have employees log expenses through an internal server or in a universal spreadsheet or even send information to your billing department to consolidate. Keeping all financial information as clear as possible makes evaluating spending much simpler than if you have to track down every cost.
Talk to people
Keeping everyone in the business on board with the importance of evaluating spending and asking them to report what they spend makes it easier to get answers if you ever have questions regarding purchases. It’ll also help you understand how much each department spends and why. Talk to employees to identify the needs of the company and where funds can best be allocated.
Keep track of spending
It doesn’t matter what size your business is; you need to keep track of spending. Even if you’re working on your own, you’ll need to know how much you make and spend for tax purposes. If employees want to get reimbursed for purchases, require them to save receipts. A record should be kept of everything bought with company money, no matter the size of the purchase. The more comprehensive the picture of costs is, the easier it’ll be to create a budget.
Make a budget
After you evaluate the company’s spending and determine what resources are available, it’s time to make a budget that actually reflects the amount of money the company has to spend. For most businesses, this step is vital because it sets the parameters for how to spend company money and helps avoid unnecessary spending. You want to make a few budgets and see which one works the best with your individual company.
Handle hard decisions
When creating and choosing a budget, it’s likely you’ll have to cut costs in some ways. This step usually involves slashing the individual budget for various departments or even letting employees go. These kinds of decisions can be extremely difficult, but often must be made in order for the business to sustain itself. If you’re the one making these decisions, handle the outcomes yourself and be as professional and unbiased as possible.