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Avoid These 6 Deadly Spending Mistakes for Your Small Business

Business consultants like to use the Front Door/Back Door analogy when describing the two factors of business profit. The front door represents when you make money, while the back door represents when you spend money. It’s definitely more exciting to look at your revenues from what you’ve sold than it is to look at the expenses associated with selling what you sold.

The front door is where you interact with the product, service or knowledge that drove your business model from the very beginning. The front door is definitely more fun to look at. The back door involves details, spread sheets and math.  Knowing this, it is not a surprise that many small businesses with profit issues are thriving at the front door, while leaving the back door hanging wide open. If your business is not performing like you want it to, it might be time to check your operation for the following deadly spending mistakes:

  1. Failing to Track Expenses. You shouldn’t be embarrassed if this first mistake is true for you. Running a small business is no small task. In the grand scheme of things, tracking your expenses quickly falls into the “important, but not urgent” category that entrepreneurs/managers simply have little time to address. Tracking your expenses by category and/or department will help you to map out an ideal budget for your business. It will also give you the ability to address specific points that make a big difference to your bottom line.
  2. Never Setting Spending Goals. Being successful – even moderately so – requires having earning goals and sales targets. Even if your business is meeting and exceeding these earning goals, without implementing similar spending goals your money will fly through the front door and right back out the back door. Once you have nailed down what you spend, do some research concerning what each item in that budget should be costing you. To get started, identify the first three or four offenders – every business will have some – and go from there.
  3. Never Renegotiating. It is true that a deal is a deal, but your business is also your business. In truth, a current vendor would rather make a little less money with you a month than lose you altogether because you’ve closed and moved on to another supplier. Renegotiating a contract or two could mean serious and reliable savings over the course of a year. Start by deciding to renegotiate two expenses in the next quarter. And assign your very best sales guy to work on this task. After all, convincing someone to give you something for less is another kind of selling.
  4. Failing to Use Targeted Approaches. There was a time when all marketing was untargeted. In our world today, marketing has become hyper-targeted to match search habits, gender, occupation, etc. While it isn’t advised to throw all of your advertising out of broadcast marketing, you should spend the majority of your marketing on targeted approaches – accomplishing more, wasting less.
  5. Buying only to Impress. While it is important to present a professional image to each person that walks through your door, you don’t have to spend $1,000 on an office chair to do so. Are you worth it? Yes. Is it necessary? No. While you can’t go backwards on this spending mistake, you can stop today. Ultimately, don’t upgrade things unless you have a clear understanding of how they positively impact your bottom line.
  6. Always Choosing the Lowest Price Tag. Keep in mind that going with the lowest price tag isn’t always the best option. While one option may cost you $100 and the other $60, you have to ask yourself which one will also last the longest. If you purchase the lower-end option, it might end up costing you more than double the high-end option when you have to turn around and replace it. Taking the time to research and invest a little more in people, supplies and equipment can actually put you in a better position in the long-term.

While these mistakes will not necessarily kill your business, fixing them will improve your profits. Keep in mind that fixing these mistakes will require time and effort and, yes, money. If these mistakes have already cost you the cash reserves you need to begin making changes, consider what a merchant cash advance from First American Merchant can do for you in the way of funds and flexibility.