Managing Your Expenses by Omagbitse Barrow...

As a business owner or organizational leader, one of things you have to commit to is having a disciplined approach to managing your expenses. If not well managed, expenses can consume all the cash that your business produces, and once you are out of cash and cannot meet your short term obligations, your business and your life begin to suffer. Your goal as a business owner is to be able to plan, track and manage your expenses so that you will always have enough cash to meet your short term needs, and therefore have the capacity to do even much more. Here are a few actions that will help you manage expenses effectively:

e   Stick to your Budget: Accepting the discipline of budgeting is a great way to ensure that your business remains focused and that you can maximize your resources. Remember, your budget must be realistic to make it workable, and once you have a realistic budget in place, you should adhere to it strictly. Being disciplined with your budget ensures that you can plan your resources effectively, prioritize, and ensure that you have enough resources for the things that you really need. By implementing a budget, you avoid unnecessary and wasteful spur of the moment expenses for your business, and everyone around you will begin to cultivate a culture of discipline. If you do not use budgets, you and your employees may not push yourself to make better decisions regarding expenses, causing you to incur some unnecessary and untimely expenses and also make sub-optimal purchase decisions. For example, because you are driven by a budget, you may decide to go the extra mile to get better bargains on items that you purchase or even seek out opportunities to restructure payment terms to accommodate your budgetary constraints. The budgetary constraints that budgets provide help us to spark innovation and creativity in making decisions. Without budgets, it almost seems like anything and everything can be purchased – this is not a sign of a disciplined and well run business.

e   Set Expense Limits:As your business grows, you can also set expense limits. For example, you can have one of your senior colleagues take up some responsibility for approving expenses. This is a great way to empower your employees, and devolve some of your power as the business owner, which is good for building an institution, but it should be done with clear limits. The limits set can then grow as the business and the capacity of such senior colleagues grow. You can even push the boundaries of sound corporate governance, by setting limits for yourself, and requiring expenses above a particular amount or threshold to be approved by your Board. This is exactly how the best companies in the world are run. Creating accountability in this way helps you to make even better and more prudent decisions that will ultimately help your business to grow. It may look like you are losing power and control in your own business, but in reality, imposing limits even on yourself makes you more accountable to the larger purpose - the long term survival and sustainability of your business, which is much more important than your short term need for power and control. So, instead of approving that N500,000 purchase of new equipment by yourself, you need to defend your proposal before your board members and get their buy-in on your project. The divergent insights and perspectives of your board members are valuable to the success of your business.

e   Separate Custody of your Finances:One of the fastest ways to stagnate and potentially kill your business is to keep your cheque books and vest all powers for financial transactions in your hands. Thank God for technology and controls that allows you to have an accountant who can keep your cheque book or have access to transfer funds from your bank account, but still requires your input to authorize such transfers or sign such cheques. The physical and process control of keeping your financial instruments separate from you helps to ensure discipline. It does not mean that you do not have access to your company's accounts, but such access will require you giving an instruction to someone else. This in itself is a significant check on your possible excesses.

e   Record All Expenses:One important way of ensuring that your expenses are well managed is to ensure that all expenses are vouched and recorded. You should create a system that requires every expense to be properly documented and approved. This way you can track all your expenses and vouch that the expenses have been validly made. A simple example of vouching and recording can be seen in a restaurant - purchases of food supplies must follow a requisition system before money is released to the purchasing officer or manager. With food, a lot of the purchases may be made in open markets where receipts will be unavailable. A proper system will therefore ensure that the restaurant owner can vouch and confirm that these purchases were actually made. The purchasing officer can be made to fill out a purchases register and hand this over to the Stores Officer who will also confirm that all the items have been purchased. This way, it will take the collusion of the Store Officer and the Purchasing Officer for any impropriety to take place regarding kitchen supplies. This risk can be further mitigated by the restaurant owner herself taking responsibility for confirming store purchases since this is an important part of the restaurant business. Frequent and spontaneous store checks are also another way of ensuring that your expenses are vouched and confirmed. Another example of vouching and recording expenses relates to the monies paid out to petty labourers and artisans who may not have proper receipts and invoices. You could create a simple form where all work done by such workers is documented properly, and can serve as evidence. Some people call it a ‘Job Order Form’ which will show the details of the work done, and include a confirmation from one of your officers that the job has been done satisfactorily and countersigned by the artisan also. Payment will only be made to the vendor after this due process has been completed. 

e   Be Prudent:Generally speaking, you should try to be as prudent as possible in making decisions regarding expenses. Prudence requires you to ensure that you are getting the most value for the money that you are spending, that the expense is relevant and valuable to your business, that the timing of the expense will not adversely affect your immediate and near-term needs for cash and that the cost of the product or service you are purchasing is competitive. So, for example, if you are purchasing IT equipment, you should understand how it works and be sure that the version or brand you are purchasing actually meets the needs of your business. Often times investments made in technology are not well thought through, so you should take time to understand your needs properly, and how the equipment actually meets those needs. 

Another example of prudence will involve getting a minimum of three quotes for every service you are contracting out, or doing a proper market survey in at least three shopping areas or markets before purchasing items that you do not use in the ordinary course of business. So imagine you are trying to purchase furniture for your office for the first time, you can go to a few shops, compare prices with online shops and then make a decision about what the best deal is. With artisans like plumbers and carpenters, invite them to inspect the work required and ask them to submit their quotes and designs as appropriate, review each of the quotes to ascertain their technical capability and understanding of the challenge as well as their prices, and through this comparison make the most valuable decision regarding who to engage. Interestingly, many small business owners especially those offering professional services - lawyers, accountants or accountants go through similar hurdles in getting business from their corporate clients. Again, this represents something that small business owners can learn from larger and more established corporates.

Finally you must have your eyes keenly fixed on your cash inflows before committing to major cash expenses. If your cash flows are strained, you must be prudent enough to either negotiate deferred payment terms with your supplier or postpone the expense to such a time that you can afford it especially if making that purchase is not time-sensitive. Where it is time-sensitive it may be wise to actually borrow to make the purchase rather than putting your lean cash resources and other important expenditure under pressure.

There is quite a lot that business owners can learn and apply to their businesses to manage their expenses better. The key however lies in your own personal discipline around managing finances, and your ability to translate that discipline into procedures and processes that will ensure that your expenses are well managed and controlled.