Managerial Accounting Pt 2 – Controlling Expenses

Super Bowl ads cost a whopping 3.8 MILLION for a 30 second spot this year.  As a small business owner, you probably know that’s out of your budget, but are you able to identify the day-to-day costs in your current spending that may be a bit too much?

Last week we discussed the planning and directing parts of a budget – the activities of managerial accountants, so this week we’ll discuss controlling your expenses.

First, you need a way of measuring your expenses.  This can be as simple as an Excel spreadsheet, or more sophisticated with actual small business accounting software like QuickBooks.  If you’re doing it yourself, you should have someone reviewing things quarterly at a minimum to ensure everything is categorized correctly.  This will make things MUCH simpler come January/February (or April) when you are preparing your taxes.  It’s so common to accidentally click on the category above or below the one you intended, which can throw off your reports drastically.

If you are using a budget, you should also be comparing your actual expenses to your budgets, and making adjustments as necessary.  If there is a variance, you know to either take steps to correct it, or decide if you’re OK with it, and shift money from another part of your budget to the growing expense category.

Let’s look at how both of these can impact you.

1)       If you have a gas receipt you enter, and you accidentally click on “Advertising” which happens to be right above “Automobile”.  Your auto expense category is now lower than it should, and advertising higher.  This impacts you when you move to…

2)      Say you have $50 budgeted for monthly advertising expenses.  You look and see that you’ve spent $125 this past month.  You dig into it and realize that the example above happened.  You go back, revise the expense, and you’re fine.
What if you actually did spend $125 on advertising?  Was it a one-time expense?  Then you may be OK, even if you’ve more than doubled your planned expenses.  Did it generate a ton of new business for you and you want to continue?  Great!!!  But you now need to adjust your sales category to reflect the expected addition in income.  You also want to adjust your advertising expense category to reflect your new monthly anticipated expenses.

This last leads you right back to what we discussed last week – formulating long and short-term plans and implementing those plans.  It’s a beautiful cycle.

 

See something you want to start with your business?  Call me to see how we can help you do it!  info@youracctgpros.com or 949.478.3329