As we’ve started assigning me tasks over the last few months it’s become obvious that my main task has been to take over the bookkeeping. I’ve started entering receipts, tracking expenses, and monitoring income. Curtis still has responsibilities in this area as well, but it has literally cut the time he spends on it down to about an hour a month.
Lucky for him working with numbers is something I really enjoy. I LIKE tracking spending, I like analyzing the percentages we’ve spent on things, I like setting a spending goal and then seeing if we can stay BELOW it. Ok, so I’m a little bit of a nerd. This is no surprise. My favorite aspect of my full time job as a buyer was analyzing the sales numbers and projecting our targeted sales for each inventory item in the store. Yup, that’s me.
I am no math genius and I’m not an accountant. I scraped through Math 12 by the skins on my teeth seeing a tutor multiple times a week, and getting extra help from my teacher as often as he was willing to suffer through my lack of comprehension. However, I am NOT using hard formulas here. I’m talking about pretty easy addition and subtraction with real numbers. Throw in the occasional equation to figure out a percentage and you’ve got the extent of the math that I’m doing here. It’s not hard and if I can do it so can you.
This fall when I started taking over the books I noticed one HUGE thing. The business income had doubled, but so had the expenses – in fact they had more than doubled. At that point I had no idea what percentage income should be going towards straight expenses in a business like this with what I would think is pretty low overhead, so I thought the spending was more than a little out of hand.
We have been living on a budget for our family finances for some time now and it works beautifully. It ensures that we always have money for the things we need and that there is also still some left over at the end of the month. If it could be so effective personally why wouldn’t it be just as effective for the business?
My thoughts – if we set a number for each of the categories on the expenses spreadsheet then we have something to work with, AND we can probably improve the profitability of the business – this is good right?!
So I asked Curtis what he thought, we both agreed that this is a good idea and I set to work. I know you’re thinking that this is all well and good but HOW did we actually go about doing this?
One of the first things I did was break down the percentage of business income that was spent yearly for the last three years on expenses. I was surprised to discover that while the numbers looked high this year, percentage wise he was well within the same range of spending as he has been for the last three years running. Over the last three years he has spent between 17-20% of his income directly on business expenses.
In the meantime he wrote his post on 6 figure WordPress consulting and received a little bit of push back in regards to his expenses. Once he broke it down and started asking around amongst his peers with similar businesses it became obvious that his expenses were in line and in fact a little below that of a lot of his fellow developers running a similar style business. So he followed it up with a post breaking down the expenses.
(Note from Curtis: Check the comments on my expense post for some other expense percentages)
The next thing I had to do was sift through the expense categories I thought were high with a fine toothed comb to see exactly where the money was being spent and whether or not there were ways we could cut back.
The most glaring of these were the Software expenses. They had more than doubled which seemed a bit ridiculous to me. Since we track all the expenses on a Numbers Spread sheet it was actually a pretty simple process. I pasted the description column and the software columns into a new sheet and deleted the rows that had no software entries so I was ONLY looking at the software. Because I wanted to see where the increases had occurred I did this for the last 3 years and put them all side by side on one sheet to see how/where the dollars had historically been spent.
Do I know exactly what each line means? No. I don’t know if some of these items are plugin’s, app’s, programs, or other tools. I can however see what the monthly subscription based tools are and what the one time expenses are. The rest of it Curtis had to sort through and figure out.
I also took a close look at his “hardware” column, and the “other” column to make sure that we are making our dollars work for us as we spend them. For the rest of the columns or expense areas I basically looked at what we had spent, and tried to assign a realistic figure for future spending.
In some areas we cut back, in other’s we increased. We even added some new categories to make things a little bit more clear and to be able to track spending more easily.
Have you broken down your expenses? If not do it now so you can get a better handle on your business.