Expense Creep – 3 Simple Steps to Improve Business Profitability

Aug 15, 2019Business

As a time goes by, normal expenses for a business tend to “creep up” and begin to erode a portion of profits. Has this happened to you and your business?

3 simple steps to improve the profitability of your business:

1. Identify general ledger expenses as one of the following:

  • Discretionary. These are expenses that could be eliminated and it would not directly affect the operations of the business.
    • Examples – Entertainment/tickets, sponsorships and 401(k) match.
  • Controllable. These are expenses monitored by management and can be controlled to increase profitability. 
    • Examples – Supplies, office related expenses and labor. 

Management of these expenses is an important area to examine for expense creep.

  • Non-controllable Expenses. All remaining expenses should be classified in this bucket. They are not discretionary and cannot be controlled by management.

2. Now that you have properly identified expenses, we recommend examining each of the discretionary expenses and determining if the incurrence is adding value to the business. If not, consider either eliminating or reducing the expense amount moving forward.

3. Finally, you should review each of the controllable expenses. Identify what is the appropriate amount or percentage each expense should maintain. We recommend creating a system to monitor and report expenses and compare them to the pre-determined goal.

“What gets measured gets managed, and what gets managed gets improved.”

This simple exercise is a very effective way for your business to better manage expenses and reduce the effect of expense creep. If you would like assistance implementing a program such as this, please contact a Smith Schafer professional.

Blank

Your content goes here. Edit or remove this text inline or in the module Content settings. You can also style every aspect of this content in the module Design settings and even apply custom CSS to this text in the module Advanced settings.

Trending Posts

Subscribe to our Blog

Related Industry Posts

document Organization for Your 401k Plan Audit

document Organization for Your 401k Plan Audit

s discussed in part two of our 401k blog series, one of the purposes of a retirement plan audit is to ensure the plan operates in compliance with both plan documents and IRS and DOL regulations. To do this, your auditor will request access to several documents. Some will be plan-specific documents, while others will be HR and related documents.

read more
2022 Business Valuation Considerations

2022 Business Valuation Considerations

More than two years after COVID-19 changed the world, business valuations are still challenging. At the midpoint of 2022, the idea that things have returned to ‘normal’ is certainly debatable. In many instances, historic valuation inputs, specifically past performance, cannot be taken as an indication of future performance.

read more
2022 IRS Backlogs & Taxpayer Service Updates

2022 IRS Backlogs & Taxpayer Service Updates

The IRS has been busy. In the past two years, the agency has processed trillions of dollars in pandemic relief funds, adjusted to often-changing tax deadlines, and dealt with several complex new tax laws. At the same time, funding was 20 percent lower than in 2010. Understaffed is the understatement of the century.

read more

Subscribe to our blog

SEND US A MESSAGE

We appreciate your interest in Smith Schafer and would love to hear from you.So please complete this form or feel free to email us directly at: [email protected]