Business overspending can happen to even the most experienced entrepreneurs and finance managers. It can be easy to overlook areas of your organization that are causing you to go over budget, such as expensive service providers and unstructured business travel.
At a time of supply chain issues and high inflation, identifying how you can cut costs and increase your company's profitability is even more important than before. After all, taking the money from overspending and channeling it elsewhere could radically affect your bottom line, especially for
smaller businesses
.Below, we've broken down 7 of the most common areas of overspending for businesses and our top tips for how organizations can turn things around!
Top 7 areas of business overspending
1. Not negotiating with vendors and service providers
When you accept vendor or service provider prices without attempting to negotiate or explore alternative options, it can mean missing out on potential cost-saving opportunities. Vendors often set initial prices with some wiggle room, so it can be worth asking if any better deals are available. It can also pay to shop around and compare costs with competitors.
This is even more important when renewing contracts. If you annually review your existing agreements, you can often get discounts, additional features or perks as suppliers try to keep your custom.
Internet services are necessary for businesses running from an office space, but you might be paying more for a faster connection than you need. Or, a different telecom provider may offer a bundle deal on broadband and phone plans for employees if you sign up for both together. Regularly assessing whether services and products still meet your company's requirements can ensure you're not overspending on services you don't need.
2. Superfluous software subscriptions
Today, businesses are bombarded with various tech solutions, from
spend management software
to project management platforms and online data storage. However, overspending is easy if software isn't used to its full potential within your organization.In a large organization it’s easy to end up with multiple subscriptions that have the same functionality. For example, several screen recording solutions for async communication, numerous video conferencing platforms, or different project management tools.
Not only does this waste money, it needlessly inflates expenses and clutters the software landscape. The result? Employees may find that the information they need is disconnected and spread across numerous systems.
A monthly subscription could be a great short-term solution if you have a short-term project requiring specific SaaS software. Scheduling regular reviews of your software subscriptions can help you ensure you are focusing your resources on the tools you actually need.
3. Unsupported business travel
An unmanaged business travel program can generate significant hidden costs that can be easily avoided. Using travel websites designed for leisure travel instead of utilizing corporate tools can also prove to be a costly mistake. Not only do these inefficiencies mean you might miss out on the best pricing available, but they also make it difficult to track expenses.
Another common inefficiency when booking corporate trips is relying on personal credit cards for travel expenses. Not only does this make tracking travel spend in real time impossible for your finance teams, asking
employees to pay out of pocket
could mean you miss out on corporate discounts and perks!Finally, failing to
create clear travel policies
can really rack up the costs associated with corporate travel. Without guidelines for hotel costs, per diem rates, and other expenses business trip spending can spiral. But there is a simple fix. Investing in travel management tech could really save you money.
Many SMBs and larger companies are considering solutions like the travel management platform
TravelPerk
. A software tool designed to assist with every aspect of corporate travel, TravelPerk streamlines your company's processes by providing a centralized platform for booking, expense tracking, and travel policy enforcement.Setting travel budgets can be complicated
. But, business leaders and CFOs can use the many platform and workflow integrations to establish and manage travel budgets in real time. Plus, the pay-as-you-travel model allows companies to manage travel expenses more effectively, minimizing unnecessary spending.4. Wasting physical resources
Using office supplies like paper, ink cartridges, or stationery inefficiently or excessively might not seem like an expensive habit. Still, they can have a noticeable financial impact when multiplied across an organization. Similarly, leaving on lights, computers, or other equipment when not in use can cause utility bills to skyrocket.
Wasting materials is also an environmental concern, contributing to your business's carbon footprint. So, what can you do to reduce waste and overspending and improve your company's sustainability in an efficient way?
Business owners can promote responsible resource management by fostering a culture of sustainability. This can be fun! Hold inspiring incentives for recycling and minimizing waste to set clear expectations for staff while coming together in a shared cause.
5. A lack of opportunities for employees
Lack of training and development opportunities for staff can be a costly oversight for businesses. Uninspired employees can lead to a high turnover of staff, an expensive and frustrating process!
Hiring a new employee costs
$4,000-$20,000 plus salary and benefits. Plus, the University of Pennsylvania found that external hires are initially paid roughly 18% more than their internally promoted counterparts. These are high figures, especially for small business owners, and can easily lead to avoidable overspending.To spare these costs and retain your teams, businesses should prioritize investing in career development. But this doesn’t need to cost the earth. Mentorship programs can utilize the expertise within your teams, while buddy schemes can help employees feel supported.
To further development, you can outsource training to specialized providers to equip employees with the latest knowledge and skills necessary to excel in their roles.
As well as limiting your financial losses, these methods can help create a more skilled and efficient workforce and foster long-term company loyalty.
6. Resisting automation
Repetitive manual tasks excessively eat into your employees' time that could be better spent on other areas of business. These processes are also the most prone to mistakes, resulting in costly disruptions and further loss of time that could be funneled into more critical tasks.
It might seem scary to change long-standing procedures, but automation will save you money and increase productivity in the long run. To help you identify areas that will benefit from automation, look for time-consuming processes in your company or areas where mistakes frequently crop up.
Some common areas where automation can greatly help are data entry, project management, manufacturing, and production. Automation can start small. Simple changes can be as straightforward as generating templates for common reports or your company newsletters.
7. Ineffective marketing strategies
Sadly sometimes we learn the hard way that pricey advertising campaigns can still yield low conversion rates! Without a clear strategy, marketing efforts can waste time and money without achieving desired results.
Businesses should focus on data-driven strategies to minimize the risk of missing their desired audience. Conducting thorough market research and ongoing performance analysis can help ensure that marketing investments generate a strong return on investment.
If you're a small business, one way to stretch your marketing budget without plunging into negative cash flow is by utilizing organic marketing. Instead of paid advertising, promote your business through organic channels like sending company newsletters, writing blogs, and posting on social media platforms to build your audience authentically over time.
Implementing money-saving methods
At the end of the day, different approaches will work best depending on your business' size and needs. Keeping up with the latest business news and attending conferences can help you keep on top of market trends and feel ready to adapt.
Regularly self-auditing can help you identify any areas of unwanted overspending and speed up effective efforts to curb costs. Leaving you free to channel your resources into areas that will provide additional value.
For more tips, check out our guide for small business owners on
saving money during inflation
and see how you can best manage your budget during times of instability.
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