Whether you’re budgeting for a new business or you’ve been operating for a while, performing regular expense checkups can help keep expenses down and profits up. Let’s talk about doing a small business expense checkup!
I totally understand that your expenses will vary according to your industry. However, some operational expenses are common for RV Entrepreneurs and digital nomads.
Understanding and minimizing these expenses are good for your business and your bank balance. So let’s take a look at some of the biggest small business expenses, and what you can do to keep them under control.
Small Business Expense Checkup
Before we go any further, are your books in order?
That’s truly the most important step here. Without clean books, how can you be aware of expenses and income? You can’t evaluate profit margin, net profit, costs to acquire each client/customer, etc.
Do these phrases and terms make your head spin? That’s ok.
Let’s go over a few basic definitions.
Revenue: The amount of money you make in your business. Many use this interchangeably with income.
Net profit: This is your income or revenue minus any expenses to run the business.
Profit and Loss: This is a report to show your net profit. It will list out all income and all expenses. This is sometimes called an income statement. It’s important to get a good handle on this report because you can see all your revenue streams and expenses broken out by category. It will help you determine your profit margin as defined next.
Profit margin: To find your profit margin, divide your net profit by the revenue or any business income. To make the margin a percentage, multiply the result by 100.
For example, you have $50,000 in income and $20,000 in expenses. Your net profit would be $30,000. Your profit margin would be 30,000/50000 = .6 or 60%
That means you get to “keep” 60% of any income your business earns.
For now, let’s assume you have clean books and are aware of your operating costs vs. income.
Small business expenses
1. Phone and Internet
As digital nomads, full-time RVers, or whatever name you like to call yourself, I think we all have multiple plans for staying connected. I suggest doing an annual review of costs on each of your plans. This can include how much you are typically using a plan.
It’s all good to keep an eye out there for new plans, that might be a good fit for you.
Maybe you have a plan just as a back-up and you only used it once last year.
If so, do you really that plan for an extra $50/month? Remember, $50/month is $600 annually. Can you find a coffee shop, library, public wifi, or another option that’s less expensive for that one time a year you need it?
Better yet, can your work wait a day or two while you go without connectivity?
These are all considerations when looking at phone and internet costs. I realize that everyone has different needs here so that’s why I suggest customizing this for you and your business needs. There definitely is no one size fits all here!
2. Office Supplies and Equipment
Do you really need that new laptop? Camera? Insert new gadget here.
While buying new equipment every year is a great way to help reduce taxes, is it really necessary to run the business?? I would consider why you’re buying that new laptop or the latest gadget. Is it an upgrade because your current equipment is failing or is it simply so you can have the latest and greatest?
Everyone loves an upgrade but I urge you to determine if it’s a necessity or a want.
For tax planning purposes, you can fully deduct equipment with a purchase price of less than $2500. However, think about your business net profit and if that $2000 is better spent on acquiring a new client or even in your pocket to pay personal bills.
Again, there is no one right answer here. You be the judge. We all have different needs to run a successful business on the road.
3. Investing in contractors
We all know a great team is essential for success. But it’s important to keep the costs of contractors and salaried employees in check. I’ll focus more on contractors here because that’s more common for small business solopreneurs to have vs. full-time employees.
Wondering if you need to treat your contractors as employees? It’s definitely important to understand the difference between contractors and employees.
Excess spending on contractors or employees can really eat up your budget in no time.
Evaluating your contractor situation frequently is essential for maintaining an efficient balance between meeting the demands of your growing business, and managing your expenses.
I recommend you consistently check-in with your contractors and see that they are providing a good benefit for your business. Is it possible to scale back on hours? Move from monthly to quarterly? Is the service provided essential to running your business? What if it goes away? Will your income suffer?
It’s really important to know how vital that contractor is to your business and your bottom line. It’s also important to evaluate if your needs have changed, grown, etc.
In some cases, contractors are a lifeline for your business. For example, a VA saves you valuable time that you can spend acquiring new customers vs. replying to emails, designing Pins, editing videos or photographs, etc.
Outsourcing certain tasks on an as-needed basis make perfect sense. These items include bookkeeping, marketing, design work, customer support. Don’t scrimp on important items but be aware of their impact on your business net profit.
4. Protecting Your Business
Every company’s risk management plan should include adequate business insurance coverage. While this protection may seem costly on a month-to-month basis, it’s a priceless investment when you actually need it.
For most business owner’s I recommend carrying insurance. Depending on your needs and the nature of your business, you may need some or all of the following types of insurance:
- general liability
- cyber coverage
- property and vehicle insurance,
- professional or product liability insurance,
- business interruption or disability insurance, and
- workers’ compensation insurance
There are many specialized forms of commercial protection, but not all of them will benefit your business. It’s important to recognize that, while your insurance needs may change as your company grows, excessive policies and premiums are an expense you’ll never recoup.
It’s important to do your research here. Make sure to find an insurance advisor who specializes in your industry and you can trust. If you have a trusted advisor, they should review your coverage annually to make sure you are covered. They can also explain all the different types of business insurance and when you might need them.
The longer your history of paying premiums on time without a claim the more leverage you have when it comes to negotiating rates.
5. Miscellaneous Items
Here are a few additional expense checkup items that may prevent little cost leaks from becoming major cash flow drains:
- Meals: Remember only 50% of business-related meals are deductible on your tax return, so it may be worth keeping this to a minimum. Do you need that coffee or can you meet virtually online? You decide which is more important to you and your clients/customers. If a face-to-face meeting seals a deal, then it’s worth it.
- Credit: If you pay most of your expenses with a business credit card and don’t pay off the balance every month, consider applying for a business line of credit instead. This revolving credit typically offers lower interest rates than the average company credit card.
- Advertising or marketing costs: I sometimes see these costs very high especially when compared to revenue. You’ll need to look at several factors here. Are people clicking the ads? If so, are they buying the product, booking a call, etc. or are they leaving without any sale? I stress running numbers here to know if your advertising dollars are being well-spent or not.
- Software: I, too, sometimes fall prey to all the new software ventures that pop up. Some of them are great and necessary to run a successful business. Others might be overkill or out of your budget. Only you can decide what’s worth it to you but I advise you to review those monthly software costs on a regular basis. That way you mind find something you’re no longer using. You also might be able to find free tools that will work for you. Do some research here. Ask fellow small business owners and RV entrepreneurs as most are happy to share tools that work for them.
What NOT to skimp out on
As I talked about at the beginning, you’ll need clean books or records to see real numbers. That’s the only way to prove if a cost is worth it or not. Are you organized financially?
Do you hate numbers? Tracking expenses? Does it overwhelm you enough that you don’t do it? If so, then I highly recommend not skimping on critical services like bookkeeping and tax return preparation. Professional assistance with keeping your expense records organized not only allows you to see where your money is going, but it also lets you make the most of any business deductions.