You might think you know all about your business’s financials, but what if there were some unnoticed money sinks that are slowly killing your business? Learn about some common hidden financial drains and make sure every penny you spend isn’t being wasted.
At A Glance:
Hidden Drain #1: Website Hosting
The majority of small to medium businesses can run a very successful website with inexpensive hosting that nearly every hosting provider offers. Why pay $50 a month for a VPS or $200 a month for a dedicated server, when $9 a month hosting offers everything you need, and probably more?
Of course, ask your IT department and web designers if the hosting package will be flexible enough for your business apps, but this switch could save hundreds of dollars a year.
Ryan Hulland
President & Co-Founder, Netfloor USA Access Flooring
When I originally started my website, I never imagine it would turn into a full-time business. That said, I didn’t choose my hosting wisely. When traffic hit 200K-plus a month, my hosting couldn’t handle it. The next thing I knew, my hosting company started recommending little changes here and there to my plan. These changes not only didn’t work to make my site handle the traffic, but also ended up costing a good sum of cash.
What I really needed was a different hosting plan altogether, and I got that through another company with much better customer service. Now I am able to host multiple sites on one plan which handles all my traffic needs (and is much more affordable).
Chris
Founder, Cut Cable Today
Hidden Drain #2: Internet Bandwidth
Does your business need 10 Mbps? 25 Mbps? 50 Mbps? Cable companies like to make comparisons with their internet packages based off of how many movies you can stream at the same time. Let me tell you, if you have a handful of employees streaming Netflix at work and it’s overloading your 10 Mbps connection, you’ve got a bigger problem than your internet bill!
From a personal example, our cable internet provider, with whom we have a ‘business class’ account switched some of their technology in our town to increase speed. You can get internet speeds of 50Mbps or higher. If you have a hundred employees, do a lot of video conferencing or other information-intensive work, that might make sense. But for most small businesses, 10-25 Mbps is plenty of bandwidth.
Here’s the problem we had. When our provider refreshed their system, they grandfathered in our account while simultaneously restructuring internet pricing without telling us. The end effect was over 6 months of us paying the same price for a 10Mbps connection as their new 50Mbps connection! I’m not saying we need the big pipeline to the internet, but it sure would have been nice to know we could have kept the same speed and taken $35 a month off our internet bill.
Ryan Hulland
President & Co-Founder, Netfloor USA Access Flooring
Hidden Drain #3: Unnecessary Subscriptions
The main issues I see over and over again relate to software/subscription services that our clients no longer use. We even found that they were paying for the same software twice a month. The client unintentionally signed up twice and the software company didn’t notice or didn’t inform them.
To remedy the problem, I will have the business owner create a separate category on their profit and loss statement for software expenses. Each month, we review the spending to make sure that the software services being paid for are actually being used or are worth the monthly expense.
The only way to notice these expenses that continually add up is to track your spending properly.
Gabe Lumby
CPA, www.gabelumbycpa.com
Monthly business journals (published across the country in major cities) can be a very useful tool for those in sales. They announce new construction, new investments, real estate trends, and more.
Here’s the catch: by the time the news makes it past the editor, makes it to print and the mailperson drops it off at your door, the ink has already dried on the contract. You, despite your good intentions, are weeks, if not months, behind the curve. Are your business journals and trade magazines gathering dust on your desk? It might be time to cancel your paper subscription and get your information online! Or, better yet, do some real networking and learn about business opportunities before they make the major news outlets.
Also, you would think we would have realized it sooner, but we had subscriptions to two file sharing services. We were using both because some of our clients prefer one versus the other. To make matters worse, we were paying for “pro” or large accounts with extra storage we didn’t need. We got rid of one of the services altogether and have literally cut our cloud storage and file sharing budget in half.
Ryan Hulland
President & Co-Founder, Netfloor USA Access Flooring
One financial drain for businesses is smaller cost subscription services that were initially experiments, but then you forget about them and the ensuing monthly fees.
What catches you off guard is when they’re smaller costs, because the larger, more expensive ones stay top-of-mind, so when they don’t work you know to cancel them.
The smaller ones might just have been a short term experiment, but they aren’t as looming in your mind so you might not cancel them right away, especially if you keep telling yourself that you’re going to try something else with them soon.
But if they are a recurring monthly charge, and you have a few of these, over time the costs can add up.
An easy way to try to fix this is to quickly go over your bank/credit card statements, looking for things you don’t recognize or remember. Chances are you’ll catch a few things that you forgot about, and a few minutes later you can have them all cancelled for good.
John Turner
CEO, Users Think
It is easy to sign up for subscription services that only cost a small amount each month. Sometimes they can slip through the cracks, however. When I recently reviewed all the things we were subscribed to, it added up to quite a bit. By removing the ones we didn’t use we saved money without much effort.
Barry Gibson
Technical Director, Evaluation Solutions
Hidden Drain #4: Forgetting to Cancel Accounts
This one is a bit embarrassing. We switched security system providers for our office to a better and less expensive provider. Their customer service and response times are much better. But, we forgot to tell the old provider we wanted to cancel. Many months went by before the mistake was caught. This was such a silly, easy to fix item, yet it went unnoticed for months!
Ryan Hulland
President & Co-Founder, Netfloor USA Access Flooring
Hidden Drain #5: Management Spending Time on Low Revenue Tasks
Entrepreneurs can drain their business financially by sending too much time on low revenue generating tasks, tasks easy to delegate, and not keeping their key critical business numbers top of mind. By structuring time based on revenue, specialty, and strategic objectives, business owners can generally immediately decrease wasted expenditure by 20%.
Examples include senior staff doing administrative work, taking time away from doing business developed to clean the office, or not using automated systems including invoicing, payroll, IT, and CRM.
Dr. Roshawnna Novellus, Ph.D.
President, Novellus Financial
Hidden Drain #6: Transaction and Merchant Fees
Transaction fees can be a big financial drain that small businesses might not normally think about. On large transactions, though, they can make a serious dent — you might lose hundreds of dollars on a large merchant payment. You’ll want to stay conscious of these fees, and look for ways to minimize them. PayPal, for instance, charges less for personal account transactions than for business account transactions.
You can decrease these by encouraging buyers to use less expensive payment methods. That might be an ACH deposit instead of a money wire, or an electronic check instead of a credit card payment. On a big transaction, small differences can mean a lot of money.
Marc Prosser
Co-founder & Managing Partner, Marc Waring Ventures
Plugging the Leak
There are all types of costs involved in running a business, and for small business owners, it can be overwhelming at times. Trying to track all expenses and going through the approval process takes time away from what you do best: getting out there and helping your customers solve problems!
I have found it often takes a team of two or three people to find these hidden costs. Not only do you need someone from accounting to pull reports, you need people from the appropriate departments to decide if those costs are needed, can be cut back, or eliminated altogether.
If you work for a large Fortune 500 company, there are major processes in place to cover this (yet there is still a lot of waste in many firms!). But for a small or medium business, any hidden costs can have a huge impact on the bottom line.
My advice is to set aside at least one day per month where you and your accounting team can go through the bills. Pull in the appropriate departments (marketing, IT, facilities, etc.) and decide if that expense needs to be fixed. When it comes to hidden expenses, the only sure way of fixing them is to shine light on them and tackle them one by one. It’s not an easy job, but the positive effects of cutting wasted costs can be huge for small businesses!
