Day after day, you pour everything you have into making your business succeed. You bend over backward for customers, design new and creative ways of generating revenue and make every necessary sacrifice to advance your business’s bottom line. After all that work, how could you possibly waste the hard-earned dollars you’ve just brought in?
Surprisingly, though, a huge number of business owners make this mistake each and every day. Whether from overinvestment in the wrong places, lack of discipline, or just plain carelessness, you may be throwing away profits in ways that you wouldn’t have expected. Consider whether you may be wasting your business’s hard-earned dollars in any of these ways.
1. Hiring More Help Than You Need
Simply put, people are expensive. The salaries and benefits you pay to employees—along with payroll taxes and the infrastructure to manage your team—likely make up the majority of how your business spends its cash. Are you making the right hiring choices, and are you seeing the necessary return on that investment?
As you add employees to your business, think about what value add you expect. Do you have consistent work for them to do that will fill the hours you’ve hired them for? And most importantly, how does the work they’re doing impact the business’s bottom line?
2. Wasting Inventory or Supplies
Product-based businesses tend to waste huge amounts of capital on unused inventory and supplies. Part of this is unavoidable; a certain percentage of goods in every batch will be damaged and unsellable. But more often, the bulk of this waste comes from over-ordering or mishandling of inventory.
Pay special attention to how you manage your inventory, what percentage is sold on what timeline, and your profit margins. Look for areas where you may be losing money on inventory that is unsold or sold at a significant discount. And remember the rules of supply and demand: investing in a more conservative volume of inventory may even make customers more eager to get a hold of your products while they have the chance!
3. Forgetting to Follow Through on Invoices
When it comes to wasting the money your business has worked so hard to earn, there’s nothing quite as disheartening as never collecting the money you deserve in the first place. Even so, a surprising number of business owners fail to follow even basic steps to collect on their unpaid invoices.
If you don’t already have a protocol in place to follow up on unpaid invoices, create one immediately. Accounting software programs like QuickBooks or Freshbooks have automated systems to remind your customers of past due invoices and even add automatic late fees. Don’t waste your money by continuing to do work for free!
4. Missing Critical Tax Deductions
Did you know there are more than 75 types of expenses you may be able to deduct from your business income taxes? Available tax deductions include a wide range of expenses that you face as a business owner every day. If you’re not taking advantage of them, you may be throwing away thousands of dollars per year.
To take advantage of available tax deductions, you have to know not only what the available deductions are, but you must also have a system in place to track and categorize your expenses so that you know how much to deduct. Invest in working with an experienced accountant who can help you get the right system in place. The savings you gain from tax deductions will more than cover the cost of professional advice!
5. Using Tax Deductions as an Excuse for Overspending
On the flip side, plenty of business owners are too quick to use the promise of a tax deduction as justification for frivolous spending. It’s true that staff lunches may be tax deductible, but that doesn’t mean weekly catered lunches are a wise expense. The ability to deduct corporate retreats doesn’t give you carte blanche to fly your teams out for quarterly 5-star island junkets. Tax deductions will cover only a small portion of these expenses. The costs will still add up.
While available tax deductions can be a consideration in your decision making about business spending, they should never be the primary motivator for an expense. You still need to weigh the cost benefits of your spending and stick to a budget that will keep your business profitable.
Did any of these areas make you think twice about how you may be wasting your business’s hard-earned cash? Don’t panic! With increased oversight, you can turn your wasteful spending around to put the profits you deserve back into your pocket.
Meredith Wood is the head of content and editor-in-chief at Fundera, an online marketplace for small business loans. Prior to Fundera, Meredith was the CCO at Funding Gates. Meredith manages financing columns on Inc, Entrepreneur, HuffPo and more, and her advice can be seen on Yahoo!, Daily Worth, Fox Business, Amex OPEN, Intuit, the SBA and many more.