As we discussed in a previous blog, managing your gross profit margins is an important key to achieving maximum profitability. Going hand in hand with margin management is controlling expenses. When operating expenses are not closely monitored, there can be a significant adverse impact on profitability as well.
Monitoring Your Operating Expenses
One key to remember is that expenses can creep up over time if you are not watching and tracking. Some expenses might rise over a period of a year, in monthly increments so small that you don’t really take notice. Yet taken as a whole over that period, even those small increments (small increases) can have an impact on total expenses causing a decrease in profits.
For example, utility expense may increase over time because you don’t have any control over the rates that utility companies charge for electricity. However, you certainly have control over usage. You can make a point to ensure that your facilities are using power intelligently and conserving where possible. In addition, you can analyze your bills and secure quotes from competing vendors–who will be all too happy to have your business.
Have Accountants Watch for Trends
Another key is to consistently produce timely operating statements where you direct your accountant to look for inconsistencies, trends, and upticks in expense line items. Remember to ask the question “Why?” for anything that isn’t obvious—there’s always a story behind the increase. It may be creep up like we discussed before, but there may be other reasons for which you can find a reason that can inform your decision making in ways to cut that expense.
The importance of proper, accurate, and consistent bookkeeping cannot be overstated when your objective is to analyze and control expenses. Transactions must be recorded properly and allocated to the correct line items in order to have consistency in reporting and to best inform your analysis. Don’t have a good bookkeeper or small business accountant? Contact Resolution Accounting right away.
One last thing to consider is the importance of technology in your accounting infrastructure. It can be difficult to detect trends if your records aren’t readily accessible and easily analyzed. Accounting software can help by storing memorized transactions that contribute to accurate records. This will help you analyze trends to minimize the ever-present possibility of expense creep.
Don’t Hesitate to Ask for Help
Does it all sound intimidating? Don’t worry–Resolution Accounting is here to help. We have bookkeepers, accountants, and specialized CFO Advisory Services to address these concerns – all with the goal of increasing your profits. That way you can focus on what you do best – taking care of your customers.