It takes money to make money, but the eventual goal of any business is to make more than it’s spending. If your business is making sales but seeing little-to-no profit, you may be leaking cash.
Fortunately, you don’t need to reconstruct your entire business model—you just need to find the cash holes and do a bit of patchwork. First, take a look at your financial statements:
- Cash flow statement
- Balance sheet
- Profit and loss statement
These financial documents can help you quickly identify weak areas that need attention. However, as any plumber or mechanic can attest, it’s not always easy to find the leaks—even if you know they’re there somewhere.
Even though it may take some work to trim the fat, identifying and eliminating unnecessary spending will help you strengthen your bottom line and better position you to be approved for growth capital, like an SBA loan.
Below, we’ll share 4 common money leaks that most businesses encounter at one point or another—and (more importantly) how to fix them.
4 Common Money Leaks Hurting Your Bottom Line
1. Wasteful advertising
While all publicity may be good publicity (debatable), your budget is limited. You need to spend your marketing money on the channels that return the highest ROI.
Focus on the channels you can track. It’s difficult—and somewhat impossible—to attribute revenue to advertising mediums like billboard ads, conference sponsorships, or influencer marketing. Regardless of how much cash you throw at these advertising means, you’ll never know for sure how much ROI they’re responsible for generating.
Instead, consider spending the bulk of your marketing budget on trackable advertising. It’s simple and easy to measure the views, clicks, bids, traffic, and ROI on the following channels:
- PPC (pay-per-click) ads
- Email campaigns
- Social media marketing
- SEO (search engine optimization)
- Content marketing
Now, this isn’t to say you should never use traditional marketing methods—we’re not saying that at all. However, if your budget is limited, it’s best to focus on channels that provide quick and clear results. These trackable channels will allow you to efficiently scale effective channels or cut inefficient advertising before you’ve drained your cash.
2. Unused software
Whether you’re a solopreneur or manage a growing team, you’re bound to accumulate a variety of software solutions. You’ll likely have bookkeeping tools, marketing software, payroll solutions, engineering apps, analytics, and more. These licensing costs start to add up—especially when you’re paying for ones you’re not even using.
Do regular audits to account for all the software your business is paying for and using. Make sure there’s an internal and external point of contact for each software solution. Check in with the owners and users of the software to make sure they’re still seeing value from the tools.
Stay up-to-date on new technology to guarantee you’re using the best tools at the best prices. Don’t be afraid to explore and demo new products—this can give you leverage to renegotiate contracts in the future or switch over to a more relevant solution.
When possible, turn off auto-renew annual licensing. Having to manually renew your license each year will force you to reevaluate the software before spending your cash.
3. Minor miscellaneous expenses
Company lunch here, a new office appliance there, a surprise swag giveaway, and an off-site team bonding event—small expenses from time to time may seem insignificant, but these teeny-tiny costs can add up quickly.
You don’t need to cut all your miscellaneous expenses—these are often important team-building and morale-boosting perks. However, you do need to keep track of them. Budget for these expenses and strive to stay within your constraints.
Regularly examine your expenses at the end of the month and quarter to see what can be cut. Create company policies for how teams can (and should) use their budgets. This will help ensure you’re spending your hard-earned cash on what matters most.
4. Sloppy Time Management
Time is your most valuable asset, and it’s also most business’s worst cash leak. Sloppy time management is less about employees taking too many YouTube breaks and more about flawed company culture. A culture of time-wasting is marked by a few telltale signs:
- Numerous and lengthy meetings for what could have been communicated through a Slack message or email
- Long, inefficient processes for process-sake
- Commuting (fun fact: commuters spend an average 408 days of their life traveling to and from work)
- Frequent required trainings and surveys
Create a culture of time management by communicating (and proving) the value of your employees’ time. Consider starting no-meeting Fridays or work-from-home Wednesdays. Set the default Google calendar meeting time to 15 minutes rather than 30. Tiny time hacks like these can save minutes throughout the day, hours throughout the week, and days throughout the year.
This article was originally written on July 8, 2020.