Have you ever heard the boiled frog metaphor? It goes like this: If you’re trying to cook a live frog and you put it right in the boiling water, it will just jump out. But if you put the frog in a pot of cold water and bring it to a boil slowly, the frog won’t even notice it’s in danger and end up getting cooked.
That’s kind of like expense creep. Little by little, business expenses start piling up. Existing expenses gradually increase. New expenses are added. You keep paying for things you might not need or use anymore. Slowly, your business starts spending more money, without anyone really noticing. You don’t even know the water is boiling until it’s too late.
How Does Expense Creep Happen?
There are lots of ways expense creep can infect your business. Most of the time it’s a combination of factors that are to blame. We’ve dealt with our share of expense creep, both within our own organizations and clients’ businesses, so we can tell you firsthand what to look out for.
- Bad bookkeeping: Not keeping accurate, up to date records of your expenses and transactions can wreak havoc on your business’ financials. That might sound pretty obvious, but you’d be surprised how many business owners neglect their books, leave them in the hands of unqualified employees, or just simply have no idea what they’re doing when it comes to business accounting.
- Lax credit card policies: Do you have a defined process for when an employee needs to purchase services or supplies? Or do you just throw them a credit card and let them handle it? Without policies in place for who can charge the company card, how to get approval to buy something, and how to record the purchase, it’s easy for charges to pile up without anyone really knowing where they’re coming from or if they are even needed in the first place.
- Keeping services you no longer use: How often do you review all the recurring charges you wrack up from services your business uses? It’s easy to forget to cancel monthly services you’ve slowly stopped using, or forget to cancel a free trial offer before you get charged. Another problem we’ve run into is letting an employee leave the organization without finding out what services they were using. A new employee comes in and chooses a different service or solution, and we end up paying for both without even realizing it.
- Keeping services that don’t provide value: This is similar to keeping services you no longer use, but in this case, you’re paying for services that don’t actually provide an ROI to your business. You may use the service all the time, but is it actually providing value to the business, or did it just become a habit to use it? Does the service provide enough of a benefit to your business to justify the expense?
These are just some of the ways expense creep can find its way into your business. Once you identify the causes of your expense creep, you can start taking steps to clean up your finances.
Taking Back Control of Your Finances
Expense creep is actually pretty easy to prevent if you take the time to put good processes and procedures in place. Here are some best practices that can help your business stop wasting money:
- Make bookkeeping a top priority: Bad bookkeeping can destroy your business–and not just because of expense creep. Without accurate, reliable numbers, you can’t make smart business decisions. Things fall through the cracks and you can end up dealing with legal issues, cash flow dilemmas, and a whole host of other problems that can sink your business. Whoever handles your books has to be meticulous, detail-oriented, and have amazing follow-through. If poor bookkeeping is to blame for your expense creep and other financial issues, consider dedicating someone who specializes in business bookkeeping to take it over.
- Keep tight reins on your credit cards: If you don’t have a policy for who can use the company credit card and under what circumstances, get one in place ASAP. Make sure there’s a system in place for evaluating and approving purchases, and consider having a credit card “gatekeeper” that other employees must go through when they want to change something, rather than handing over the card and letting employees make purchases on their own.
- Review expenses regularly: This one should be pretty obvious. Every month (or whatever makes sense for your business), review all the services, memberships, subscriptions, and supplies that you’re paying for, and make sure they’re all still being used and provide value back to the business. You need to know exactly what you’re paying for, who’s using it, and if it’s actually worth the cost. Your accounting team should be reviewing your expenses weekly and monthly.
- Don’t pay for anything that doesn’t provide value: Review everything you’re spending money on and ask yourself if it brings real value to the business. If you’re paying for services that don’t help you save time, money or resources, or that don’t contribute to your bottom line, ask yourself if that service is really worth it. Chances are it’s an expense you can cut without hurting productivity.
Expense creep can seriously hurt your business, but by using some simple best practices like the ones above you can make sure your business doesn’t waste money or get nickel and dimed to death. If you need help getting your expense creep under control, leave a comment below. We’d be happy to help you out!
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Chris Giorgio is the President of Fully Accountable. Fully Accountable is an outsourced accounting firm specializing in eCommerce and digital businesses. Chris has served as a CPA, CFO and has over 14 years of experience in the accounting and finance industry. Chris has dedicated his career towards helping entrepreneurs and high-level business owners achieve greater profitability through specialized outsource accounting functions.
