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Three main areas where small businesses overspend

Three main areas where small businesses overspend

When your balance sheet shows an unusual spike in cash outflow, it may be time to take a closer look at your business spending. More often than not, for small businesses, overspending happens in these three areas, namely; business development, marketing and manpower.

Ask yourself these questions to analyse the situation –

• Is there a sudden spike in the amount spent on certain business development activity?
• Is there a huge mismatch in the marketing spends and sales return?
• Has your current human capital been productive enough? Is your spending on manpower matching your business needs?

Here’s a detailed explanation of how these areas could skew your balance sheets, making the expenses column a lot heavier than the income side.

Business development

Business development is one of the crucial activities for healthy growth of an organization and as a small business, you would be raring to find new customers/clients Travel, entertainment and manpower costs are main components of this exercise. In order to ensure judicious spend on this exercise, ensure there is a clear review mechanism to keep track of the conversion rates. Your spending may not be justified if the conversion rates are lower than expected. If the conversions are low then get to the root of the problem – leads. It is essential to check if the business development leads are genuine and filter the leads. Once the leads are filtered and any extra frills are cut down, the whole business development exercise would make a lot more sense financially.

Marketing spend

To support business development, marketing the product or services is a prerequisite. As a small business owner you would be willing to do anything in your power to increase awareness about your products/services and business, however, it is necessary to know where to draw the line. Marketing collateral such as brochures or e-mailers, networking events and even social media marketing, demand manpower hours, energy and finances.

When it comes to marketing, make sure that your target audience is well defined and check to see if they are receptive to your marketing efforts. Do a follow-up after you send out e-mailers, see if your networking is resulting in more leads and also check to see if your social media marketing efforts are working favourably with your online community.

Manpower costs

In a small business, your existing team could be stretched, as they may have to double up and go beyond their normal job description. There could a temptation to hire extra support on a part time basis, outsource or even hire full time employees. Before you give in to any of the aforementioned temptations, see if all the members of their team are pulling their weight. Hiring support or outsourcing could prove expensive and you need to be sure that you can justify such costs.

Three main areas where small businesses overspend

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