How to Prioritize Expenses for Your Small Business

If you are a small business owner, every operating expense may appear to you as a non-negotiable outflow. But, when you analyse the cash outflow with HR payroll software, you will realize that not all business expenses are of equal significance.

Take for instance, employees traveling at company expenses. Small businesses barely have any travel budget, and it can prove to be a really costly affair for them. Fortunately, SMBs can benefit from different video conferencing tools to reach across geographies without making a dent in the financial budget.

Similarly, many other expenses can be prioritized to ensure that a firm is spending only on unavoidable overheads while creating a cash float for the near future. This brings us to the hierarchy of small business expenses, which runs parallel with Maslow’s hierarchy of needs.

Physiological – (Defining the Existence)

The key to prioritizing small business expenses lies in Maslow’s hierarchy of needs. The most basic human need is of survival, which is possible with food, water, warmth and rest. Similarly, existence and survival are the foremost concern for start-ups. It begins with getting the right domain name to finding an office space on rent and collecting utilities.

You can work independently or in a sharing space. The concept of co-working is quite popular, as it provides the opportunity to network with brighter minds in the industry. Many phone and web apps, software solutions and other tools have been designed to help people make the most of technology in the co-working space.

While Zoom.Us allows users chat with anyone and organize host group meeting via smartphones, Iflexion helps in document sharing with larger teams across remote offices. And then there are Google Docs, Sheets, Slides and Forms, allowing multiple users create, edit and revise documents, presentations, spreadsheets, and forms online.

As a small business owner, you also require right tools which allow you to work even on the go. The trend of getting work done by freelancers is gaining momentum in the era of digitization, and is also a cost-effective option for small businesses. Take for instance critical business tasks like payroll and tax processing, which can be managed accurately with HR software.

From generating compliance reports to expense management and record-keeping, all can be managed anytime and from anywhere by your employees using Payroll Software. This popular HR and payroll software solution provides advanced features for accurate payroll and tax calculations really quick.

Safety – (Conforming to Rules, Standards & Law)

Most small business owners don’t consider the safety of assets as an interesting topic. However, it can prove to be the real saviour in various unavoidable scenarios like an employee inadvertently releasing sensitive customer information, or a natural calamity keeping an office out of business for months.

Also, small businesses with limited working capital often face challenges in creating safe and healthy workplaces, and meeting regulatory requirements (which if left unfulfilled can land them in legal trouble). Fortunately, there are different types of business insurance for start-ups and SMEs in India, such as:

• Property Insurance: Property insurance helps businesses protect their commercial assets from perils such as theft and natural disaster.
• Professional Liability Insurance: Protects service offering companies against negligence claims made by clients as a result of mistakes or failure to perform
• Worker’s Compensation Insurance: It covers medical treatment along with disability and death benefits in a case where an employee gets injured or dies owing to extreme work conditions.
• Product Liability Insurance: If you are manufacturing products for the general market, product liability insurance is a must have. It can protect you from lawsuits in case of any damage caused by your products.
• Business Interruption Insurance: This type of insurance is more applicable to those businesses which operate in a physical location, such as retail stores and restaurants.

Common Insurance Mistakes Committed by SMBs

Even if a start-up is aware of these beneficial insurance plans, they may end up committing these mistakes – Not insuring for liability, paying too much for a business insurance coverage or getting the wrong coverage which doesn’t fulfill specific security needs of a business.

How to avoid these insurance errors and sail smoothly?

• Compare policy features carefully
• Don’t go with a cheap policy to cut corners
• Avoid skipping liability coverage
• Before you buy a policy, read its terms carefully
• Combine your coverages into a single business owner’s policy (BOP)
• Use advanced HR payroll software for handling insurance and taxation details

Further, you need to categorize your expenses to get maximum tax benefits from your deductions. Along with designating office expenses like supplies and equipment, you can list rent or lease expenses, include legal and professional services, and deduct employee benefits such as insurance.

Belonging – (Building Associations & Fostering Togetherness)

For small business owners, there are a lot of balls to juggle! Often, they lack the bandwidth to support all basic functions at the same time. And yet, you need to be on the top of accounting, human resource, sales, marketing and public relation.

Depending upon the business size and resources at your disposal, business owners can outsource certain functions which lie beyond their core competencies. Moreover, companies can also associate with freelancers to get projects accomplished quickly and efficiently.

Cloud computing technologies for HR payroll software and other solutions can further help small business achieve greater returns with little capital investment and fewer employees. End users can access different cloud-based applications using web browsers and mobile applications.

By deploying Software-as-a-Service (SaaS) and Platform-as-a-Service (PaaS) technology, SMBs can go global and cater to diverse customers at quite an early business stage. (cover price point)

Esteem – (Getting Market Recognition)

Small businesses can adopt different marketing strategies. Cause marketing, paid advertising, relationship marketing, online marketing, transactional marketing and word of mouth – depending upon their target customer, business type, and the major performance metrics.

Knowing which of these marketing strategies would work for your product or service is a little tricky though. You want quick return on your every promotional effort, but can’t fork out much money for the marketing budget. However, by finding answers to these questions early on, you can smooth out the path ahead.

• Who is your ideal customer?
• Are they available online, and if so, on which platforms do they spend time online?
• What is the business type – B2B, B2C, or both?
• Which geographic area are these customers in?
• What is the unique value proposition of your business?
• How your competitors are doing online?
• What are your performance management metrics?

Initially, start-ups don’t want to spend time and money on strategizing. However, to segregate customers who can actually incur long-term profit, strategizing is important. When you have a limited budget for marketing and promotion, why spend money on a customer who is not profitable?

Akash Nangia, the Co-Founder of Techjockey (a software e-commerce platform that was established in 2016) ardently practices the focus strategy, “Your customers are up for conversation, you just have to approach them with the right message. By adopting this approach of keeping marketing messages directed to pain points of every customer, we have succeeded in creating a significant market base in just 2 years.”

Analyse your target customers and design your communication accordingly to get more profit out of every marketing amount spent.

Self-Actualization – (Probing All Strategic Boundaries)

Innovation can either mean a single breakthrough, or it can be the outcome of series of small, incremental changes. Whatever be the innovation channel, it requires filtering of ideas and applying resources to exploit them.

Innovation ideas don’t come out of the blue. It requires a strategic vision on how you want the business to expand. By analysing current business trends and the way your competitors are operating, you can add wings to your innovation ideas. Also, you need to involve your suppliers, customers and business partners to make the most of every business networking opportunity.

“No expansion model is absolute, all that’s important is quantifying the relative risk with every step to building sustainable practices and create a thriving global ecosystem together with all your stakeholders”. said Arjun Mittal, Co-Founder of SISL Infotech Pvt. Ltd., one of India’s up-and-coming system integrator companies.

Further, by observing the buying patterns  of customers, you can get ideas for making improvements in deliverables.

Wrapping Up

Managing the expenses is important to ensure the profitability of your small business. So, keep a firm grip on all costs to ensure that you don’t end up spending on unnecessary requirements.