Control spending as your company grows
Forsythes Business & Financial Advisors
As your company grows, the opportunity for spending to spin out of control increases. This is extremely risky for a small business which, generally, has little redress for significant cashflow glitches. Strangely, uncontrolled expenditure can also affect morale negatively. Certainty is the key plank in maintaining good morale so ‘out of step' expenditure, which can sometimes also appear contradictory, can become a real issue.
One of the primary ways to keep costs under control is to coordinate all purchasing activities. Coordination of spending may seem straightforward, especially when all or most of it is done by the company's owner. But such purchasing should not be random.
Even a relatively small company can benefit by establishing a ‘finance team' which would meet regularly to discuss and determine all important product and service spending. They would also prioritise expenditure and align it with the cash flow budget. The simple act of meeting in committee focuses greater attention on coordinating spending - and can save a small company thousands of dollars a year.
Once such a committee or team is formed, a master list of spending categories should be drawn up. Priorities need to be set, with an overall budget divided among the specific categories.
One of the central goals of spending control should be the definition of cost limits for all targeted products and services. For example, a growing business may contract with a supplier to recommend and supply computer equipment.
By using a 'scoping' document that outlines objectives, timing, responsibilities and performance, the total cost can be controlled while avoiding expensive 'scope creep'.
Many businesses purchase with credit cards. While this offers flexibility, speed and excellent record-keeping, it may prove risky to a smaller business, which may be prone to cash-flow ups and downs.
A finance team will ensure such payment methods do not unduly impact on the cashflow of the business.
As a company grows, the responsibility for indirect spending usually tends to move further from owners, who may prefer to be involved in more ‘strategic' activities. Few things, however affect the long-term growth and profitability of a company more than the sum total of unforecast spending. Again, a small team tasked with the review and pre-emptive reporting of potential blowouts can provide the eyes and ears needed to ensure effective outcomes are achieved.
For many small businesses the surge in I.T solutions that assist in ensuring better financial control have proven very effective. One such innovation, Cloud based solutions have given rise to such services as virtual CFO, this service leverages cloud bookkeeping to allow your external advisor to become, well....your virtual chief financial officer.
For the average small business a CFO isn't an affordable option whereas the virtual alternative is as it can be tailored to suit individual business needs from basic bookkeeping through to services that typify the role of a true CFO, including:
• Full payroll function
• Sales invoicing & debtor management
• Creditor payments
• Developing budgets & financial forecasts
• Ensuring effective use of available cash
• Best practice benchmarking
• Timely delivery of Management reports
• Design and refinement of internal accounting systems….and more
Technology has widened the support available to small business to unprecedented levels. The opportunities to imbed your external advisors into your business while leveraging your own 'finance team' is no longer just a good idea it is now a must for those looking for sustainable growth with accompanying profits.
How effective is your expenditure control system?