Out of Control Expenses

Expenses are one of those things that sneak up on us. For a few months everything may seem reasonable, but suddenly everything seems to change for the worse and you have out of control expenses. You’ve probably experienced this on a personal level. You may find yourself asking, “Why are we spending so much on groceries or recreation or household supplies or whatever?” Probably one culprit is a lack of coordination between family members. Another cause of this can be no budget. Even with a budget it is highly likely that things at some point get out of hand. Why? A common cause is not really using the budget to direct spending. See Why You Never Hit Budget for more on this.

Just like in personal life, excess expenses can sneak up on you in business.

Responsibility

If you are going to actually use a budget, it is critical that responsibility be delegated to the appropriate people. The appropriate people are generally those who can control whether an expense is incurred. For, example, a Marketing Manager may be responsible for all marketing expenditures. As such, when someone request spending on a marketing effort, the Manager can consider whether it fits within the budgetary constraints for the marketing department. That does not mean being cold and inflexible, but it does mean to make absolutely certain that something can be justified. If something is approved that was not originally budgeted for, then the manager may need to make decisions on where to reduce planned spending. The important thing is that someone is responsible and has the leeway to make critical decisions (sometimes with others’ input). Without this it is just about a guarantee that a company will experience out of control expenses.

Regular Review

It also is a good idea to review actual results versus budget on at least a quarterly basis, but preferably monthly or even weekly. This way you can identify problem areas and take corrective action sooner rather than later.

One important thing to remember here is that this should not be a time for a company owner, CEO, or President to yell at people because they spent more than budgeted. If responsibilities have been appropriately assigned and authority granted then that person needs to be able to explain why they spent too much. If they can’t then it may mean more training is needed or even that the budget was not realistic and needs revising. Regardless, all the yelling in the world is not going to solve the issue. Of course, if a manager continually goes over budget, then perhaps a change is in order, but first see if a reason exist that can be easily corrected.

How do you plan for, track, and adjust for expenses? If you have no plan, don’t know, or are experiencing difficulties, think about some of the ideas above so you can avoid out of control expenses.

If you want to know more, contact AimCFO – Contact

As always, your comments are welcomed.

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