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General Ideas on Expense Management

Guest post by: MIchael Daley

Article Overview: Budgeting and managing expenses are easily overlooked in the heat of driving sales. Here are some ideas to manage costs and possibly avoid the slippery slope to insolvency.

General Ideas on Expense Management

Managing expenses actually amounts to a form of preventive expense control. It enables the business owner to prevent problems or losses or extravagances before they happen.

Thus the real objective of expense management is to stress control of expenses; to suggest before-the-fact actions for the business owner.

Managing expenses actually amounts to a form of preventive expense control. It enables the business owner to prevent problems or losses or extravagances before they happen.

Thus the real objective of expense management is to stress control of expenses; to suggest before-the-fact actions for the business owner.

However this does not mean after-the-fact analysis no longer has its place. Far from it! The business owner should be willing to change plans or processes the moment it becomes obvious they are not working.

Thus, it is necessary for the business owner to forecast the specific expense journal accounts in a monthly cash flow forecast, preferably at the beginning of the year, and then track each month's actual expenses versus the forecast. This will help determine trends, seasonality, and provide a roadmap for forecasting the following year.

Here are the functions of expense management:

• Analysis Review each expense account, at least the critical ones. Consider historic and seasonal patterns. Look for causes of poor performance as well as reasons for superior performance. Use this information to formulate realistic objectives for the expense in the future.
• Planning Consider the specific actions needed for each expense. Do this personally at first. Then, it might be desirable to discuss plans with managers and affected employees, to get their ideas and commitment.
• Policies Establish policies for each expense. Expect people to follow them completely, but also report problems the policies cause so corrections can be made. Policies should be written down so questions can be resolved without disputes.
  
  Establish budgets for expenses; these, too, should be adhered to carefully. Approval should be required for overages.
• Assignment Give both authority and responsibility for carrying out actions to your managers and employees. Explain what's expected in clear terms.
• Evaluation Watch expense performance regularly. Watch for "drift" in an undesired direction. Compare actual costs to budget forecasts. Find out why accounts are out of line and make the appropriate corrections.

As Benjamin Franklin so aptly stated "Beware of little expenses; a small leak will sink a great ship."

But remember, expense management is not all about cutting expenses. These functions of expense management will let you see what works and possibly lead to the decision to put more money into a specific expense entry like a marketing campaign to continue sales momentum.

So whether you own a home-based business or a company with managers and employees, proper handling of all business expenses will ensure the smooth functioning of your business, regardless of your position in the market.

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Article Tags: budgeting, cash flow, cost management, expense management, expenses, forecast, manage costs



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