It’s the weirdest thing: you know you’re making money, because your invoices are being paid and money’s going into your bank account – but it seems to disappear just as quickly. If you’re struggling to keep any money in your accounts, chances are that you’ve got at least one money leak that needs to be plugged.
This is surprisingly common among small businesses — but it’s something that’s well worth fixing. Besides, sorting out the four most common money leaks is pretty straightforward, even if you’re number-phobic. (And we’ll give you tips for doing so at the end.) But before we get to that, do any of these sound familiar?
The four most common money leaks for SMEs
Monthly or yearly subscriptions to the million and one things you need to run your business can really add up.
A couple hundred pounds a year here, a monthly charge of £19.95 there, and suddenly you’ve got some fairly hefty operating costs that might be hard to keep track of.
The worst are those that you don’t really need — or those you’ve forgotten about entirely. It’s incredibly easy to sign up for a bunch of things as free trials, especially when you’re starting out, but just like anything else in your business, those subscriptions need to be paying for themselves. If they’re not, it’s time to reconsider.
2. Bank fees and finance charges
Lots of SMEs end up paying more than they need to in bank fees, finance charges and swipe fees, simply because they don’t know what they’re paying or that they have other options. For example, you might have signed up for a business bank account because the bank had a good deal at the time, but has since changed its fee structure, and it’s now far less favourable for you. Or you may not realise how much that 2.29% that comes with every swipe of a customer’s credit card adds up. Either way, finance charges and bank fees can be bad news.
3. Late fees
If your bookkeeping is a little bit … shall we say, lax … you can end up forgetting about invoices or payments that you owe. While some vendors are understanding, many aren’t, and you can end up with a bunch of late fees before you know it.
Besides being frustrating for the people you do business with, this type of setup also makes it hard for you to get a sense of where your money’s going, making it nearly impossible for you to make accurate projections.
4. Things you don’t realise aren’t working
This is one of the sneakiest ways your business can lose money, and it’s all the more obnoxious because it’s easily preventable. So many small business owners sink money into strategies or systems that aren’t working because they don’t take the time to check their performance. If you’re not absolutely clear on what type of return you’re getting on any projects, systems or strategies you’ve got going, consider this your wakeup call — you really, really don’t want to find out years down the road that you’ve been pouring money into a black hole.
How to plug the leaks
Okay, so you’ve looked at the list, and you’re finding that at least one of these leaks sounds uncomfortably familiar. But don’t worry – it’s fairly easy to plug the leaks in your business. Honestly, the hardest part is simply sitting down and facing the problem.
Start by doing an audit
No, not the scary kind from HMRC, but the kind where you review your bank statements for at least the past six months (and ideally the past year) to get a sense of where your money’s going every month. If you’re using a digital accounting programme like Clear Books, you can easily view your expenses by importing your bank statements.
Make a list of all the different places your money is regularly going to. This includes anything you’re paying for monthly, anything that happens in conjunction with clients paying you (like swipe fees), anything you have an annual subscription for, etc.
Then do the housekeeping
You may have see some things that you can get rid of right away. That old subscription you’re not using? Unsubscribe. That unreasonably high bank fee? Start looking for other places to do your banking or negotiate with the bank to get a lower rate.
Once you’ve removed the obvious money pits, go back and look at things like systems and strategies. Are you getting an ROI on them? If not, then use that information to inform your next moves so you can recoup your losses.
Create a system for tracking expenses
This is one of the best things you can do for your business — create a system that lets you see, at a glance, where your money’s going each month. Whether you do it in a convenient online programme or are a fan of the classic spreadsheet, make sure you follow through on recording your expenses and reviewing them regularly.
Do a deep dive each quarter
Once you’ve gone through your financial declutter, don’t let it accumulate again. During your quarterly business check-in, take some time to make sure everything’s ticking along and you haven’t picked up any extra expenses along the way.
Love straightforward advice for SMEs from accountants who understand them? Click here to read our blog!