Budgeting for Small Businesses

Are you struggling to make money in your business? One of the fastest ways to turn the corner is to cut costs. Here are 7 ways to cut costs: 1) Conduct a cost audit The word audit makes chills go up my back. Going through an audit stinks. But this is a different type of audit. Do a thorough review of your expenses to identify areas where you can reduce costs without too much impact on the business. 1. Pull 12 months of transactions 2. Label them: - Fixed or variable - Essential or non-essential 3. Identify subscriptions or recurring charges 4. Group them into 3 buckets: cut, review, or keep 2) Optimize operational efficiencies Easy to say right? Do these 3 things: 1. Incentivize your staff 2. Bring in an outside expert in automation and/or processes 3. Create a process flow diagram for your major processes and look for areas of improvement Work with your team on the review items to decide which to cut. 3) Adjust employee authorizations Revisit who you’ve authorized to do what and spot-check employee spending. This keeps employees accountable. Yes, give employees authorization to make decisions, but only when you have the proper structures in place. 4) Outsource Non-Core Activities You can’t be an expert in everything. Outsource activities like accounting, IT, marketing, and HR. Each requires immersion to become great, so let the pros handle it. 5) Re-negotiate contracts Build a relationship and understand the other businesses' needs. Share yours as well, then look for areas of mutual benefit. Just asking “we need to lower cost by 10%; how can we make that happen?” can open up the floodgates. 6) Leverage technology Consider what can be: 1. automated 2. move to the cloud 3. made more efficient Tech can be expensive up front, but often you’re saving in time or error reduction. Don’t pinch pennies while your team spends hours weekly on workarounds. 7) Setup a regular review Regularly reviewing costs, softwares, and processes is a great way to stay on top of your costs. This creates a culture of accountability. This often slips when people get busy, so make sure it’s a priority and stays on the schedule. Cost-cutting should be a temporary thing. A constant focus on cutting cost is going to sow doubt among your team. Cost reduction is a great first lever, but it should never be the only measure. Thank you for reading! This was originally in my newsletter, where I share business finance tips for 40k SMB owners each week. Subscribe here: https://lnkd.in/gVigaTwi

A client recently referred me to a CEO whose company just crossed $10M in revenue...... On paper, everything looked great. ✅ Fast-growing professional services firm ✅ Strong reputation in their market ✅ Double-digit growth over the past 3 years But within 10 minutes of our first Teams call, the real story came out. He was exhausted. Cash flow was tight. Margins felt thin. And he couldn’t understand why. Then he said something I hear far too often: "Chris, I think we just need to push sales and operations harder to get ahead of these expenses." I had to stop him right there. Selling more with a broken operational model doesn’t fix the problem. It just hides it… temporarily. 🔥 His finance team delivered a clean P&L every month. But a P&L is just the scoreboard. It shows revenue, expenses, and profit. It doesn’t show what it actually costs your team to deliver the work. When we looked at operational performance, the silent margin killer appeared: SCOPE CREEP 🫨 Scope creep quietly destroys margins in service businesses. His team was spending 40–60% more hours delivering projects than they were billing for. Because he only reviewed total revenue and payroll, the problem stayed hidden. And it got worse. Some of his largest clients were actually losing him money. This is where CFO-level financial analysis becomes critical. If your business is growing but cash still feels tight, start here: 1️⃣ Measure inputs not just revenue Track the time, capacity, and resources required to deliver your services. 2️⃣ Review profitability by client Blended margins hide the truth. 3️⃣ Connect operations to finance If operational metrics aren't tied to financial results, you're flying blind. Here’s the reality many scaling SMBs face: Revenue is vanity if operations are quietly eating your cash. ❓ Founders: do you know which clients are actually profitable? 👇 Curious to hear how others track this. #CFO #ProfessionalServices #SMB #BusinessGrowth

Materials and energy prices are up. Interest rates are increasing. Inflation is likely rising too... You can’t control any of that. BUT you can control your response. And that’s what matters. These external shocks are the same for everyone. Your competitors are dealing with them too. The difference? How you react. My advice: 1) Understand them Know the impact on your business - properly. Review your pricing 2) Understand your direct and indirect costs. Know your gross margin. Know your break even point. 3) Increase your prices Yes - you need to. Communicate it clearly. Explain why. 4) Review your short-term cash You should already be doing this. Weekly rolling cash flow forecast. Spot issues early. Speak to funders if needed. 5) Repeat this regularly At least quarterly. This is not a one-off exercise! Because if you do nothing… Your gross margin will decline. Your profitability will fall. Your cash will worsen. And that’s how good businesses get into trouble. Do the work... stay on top of your numbers. Make better decisions before the numbers make them for you!

Most founders don’t know where their money is going. They see revenue growing. They see expenses rising. But they don’t really understand why cash is tighter every month. I’ve made this mistake. Even while growing multiple profitable businesses. Even while acquiring companies doing millions in ARR. Here’s what I wish someone told me earlier: There isn’t just one type of cost. There are 4. And they each require a different decision. Let’s break it down: 1) Operating Expenses (OpEx) – the obvious one → Salaries, software, support, AWS, office → What you pay every single month → If it’s bloated, you’re burning → If it’s too lean, you’re stuck doing everything yourself At lemlist, we kept OpEx low by default. That’s why we could stay profitable, even while growing fast. 2) Capital Expenses (CapEx) – the bets → One-time costs: rebuilding onboarding, buying a tool, acquiring a company → If you get it right, it pays off for years → If not, you’ve just set money on fire Buying Taplio & TweetHunter was CapEx. But we had the cash because OpEx was under control. Most founders don’t plan for CapEx, they react to it. That’s why they’re always scrambling when an opportunity shows up. 3) Revenue Expenses (RevEx) – the sneaky one → Payment fees, affiliate cuts, partner revenue shares → The more you sell, the more you lose, unless you optimize this 4) Financial Expenses (FinEx) – the silent killer → Loan interest, venture debt, equity dilution, broken payment terms → Founders ignore it until it’s too late I’ve invested in 20+ startups. You’d be surprised how many raise money with bad terms, poor capital structure, and no understanding of dilution mechanics. They celebrate the fundraise, then spend the next 3 years trying to fix it. Here’s the shift: Don’t ask, “Can we afford this?” Ask, “What kind of cost is this and what’s the long-term tradeoff?” That one question has saved me millions.

After serving 500+ businesses, here’s the hard truth about startup failure that most founders ignore. Companies with great products and strong teams still fail. They don’t track their monthly fixed costs religiously. Burn rate determines how fast you’re spending your cash reserves each month. It’s the silent killer of otherwise promising companies. And here are the two biggest killers: prepaid expenses and slow Service-to-Cash. 1. Prepaids: Fixed costs you pay upfront - often once a year - for things like insurance, software, or contracts. They drain your cash in one shot, but founders rarely account for them month to month. 2. Service-to-Cash: You deliver the service, but you wait 30, 60, sometimes 90 days to collect. On paper you’re profitable, but in reality your bank balance is bleeding. Together, they can wreck your runway faster than lumpy sales numbers or product launch flops. Your burn rate impacts everything: • Timeline to profitability • Risk assessment • Financial stability • Runway length Common pitfalls to avoid: • Ignoring prepaids and annual contracts • Overestimating runway because of unpaid invoices • Irregular cost monitoring • Overlooking non-recurring expenses • Failing to plan for seasonal swings The solution is simple: • Spread prepaids monthly so your burn is accurate • Shorten Service-to-Cash cycles (tighten collections, offer incentives, enforce terms) • Review expenses monthly • Optimize staffing costs • Strengthen cash management • Diversify revenue The golden rule: maintain enough cash to cover at least 6 months of operating expenses. Your company’s future depends on the financial habits you build today.

How I Break Down Expenses for Internal Reporting (and Why You Should Too) When preparing reports for internal management purposes, the key objective is not just compliance with IFRS or IAS standards (which is the requirement for annual or audited statements meant for external bodies), but rather providing clarity and actionable insights for decision-making. For monthly management reporting, however, it is more effective to break down expenses into practical categories that reflect how the business spends money. I recommend categorizing expenses into: ▪️ Energy: Covers power, diesel, fuel, and utilities that keep operations running daily. ▪️ Selling & Distribution Costs: Include marketing, logistics, delivery, and commissions tied to getting products to customers. ▪️ Repairs & Maintenance: Expenses for sustaining assets, equipment, and facilities in working condition. ▪️ Administrative & General Expenses: Overheads like salaries, office supplies, insurance, and communication essentials. This system helps management track cost drivers, spot trends, and evaluate efficiency in real-time. Picture your report presentation like this 📷 For September Your company recorded N200 Million in Revenue and total operating expense was N60 million, representing 30% of revenue. You clearly categories the expenses using the four categories: ▪️ Energy costs accounted for N20 million, making up 10% of revenue. ▪️ Selling and Distribution expenses were N12 million or 6%. ▪️ Repairs and Maintenance cost N6 million, about 3%. ▪️ Admin and General totaled N22 million, representing 11% of revenue. Interpretation ▪️ Energy (10%):- High, consider energy-saving options or contract renegotiation. ▪️ Selling & Distribution (6%):-Monitor efficiency & ensure expenses drives proportional revenue growth. ▪️ Admin & General (11%):- Review rising overheads to prevent margin erosion. By doing this, you’re not just recording numbers. You’re telling management a story about where their money is really going. Imagine you did the same for October, we can easily compare it. Your company recorded N220 million in revenue and incurred total operating expenses of N67 million, representing 30.5% of revenue. Breaking this down using our four categories model: ▪️ Energy expenses were N21 million, about 9.5% of revenue, showing a slight improvement in efficiency compared to the previous month. ▪️ Selling and Distribution costs increased to N15 million or 6.8%, indicating higher spending to drive sales or expand market reach. ▪️ Repairs and Maintenance rose to N7 million, accounting for 3.2%, possibly due to preventive upkeep or operational needs. ▪️ Admin and General stood at N24 million, about 10.9% of revenue, suggesting steady overhead levels that still warrant monitoring for efficiency. This approach enhances clarity, reveals cost drivers, enables quick identification of inefficiencies. I hope this helps someone out there. See comment for other information.

If you can’t explain your P&L in 5 minutes, you don’t really control your business. Managing money isn’t about fancy spreadsheets. It’s about knowing what’s coming in, what’s going out, and making smart choices. Here’s my 5-Step Simple Plan: 1️⃣ Know Your Numbers – Track every part of your Cashflow. Where does it come from? Where does it go? 2️⃣ Identify the Levers – Some things impact profit more than others. Focus on what really moves the needle. 3️⃣ Track Regularly – Quarterly reviews are for autopsies. Weekly reviews are for survival. Real-time tracking lets you pivot before a “dip” becomes a “disaster.” 4️⃣ Scenario Planning – Ask “what if?” Plan for costs rising, customers leaving, or unexpected events. 5️⃣ Act Decisively – Data without action is just noise. Fix what’s broken. Scale what works. 💡 Knowing your numbers isn’t enough, mastering them gives you control over your business and its growth.

As a founder, I know firsthand how the “little things” can make or break your bottom line, especially when you're navigating an early-stage business in the UK. This blog is packed with practical (and often overlooked) strategies that have real impact. From voluntarily registering for VAT to joining trade associations for unexpected savings, I have used these cost-cutting tactics at 1st Formations to stay cash-flow positive. If you’re a fellow founder, check out this list. It's all about being smart with the money we already have. Small wins x 10 = serious savings. Hope it helps others who are on the same journey. Let me know which tactic has worked best for you! #smallbusiness #cashflow #savings #ukbusiness #1stformations

This one metric separates thriving businesses from failures. Most entrepreneurs overlook it until it's too late. It’s not hard to create a great product or service. The real challenge is producing it for less than people are willing to pay. This is where businesses thrive or die. At Quest Nutrition, our mission was clear: make a protein bar with the flavor of a candy bar but the protein profile of a protein powder. It was crazy expensive at first. (We joked about having the most costly protein bars on planet Earth.) We knew to scale, we had to drive costs down. Here’s how we did it: Model It Out. Build a detailed business model. Know your costs at different volumes. Break down your costs for ingredients and employees, and align them with your revenue. Scale Smartly. Initial costs will be high. As you grow, buy ingredients in larger quantities to reduce costs. Validate Your Assumptions. If your product needs to be priced higher than what customers are willing to pay, you don’t have a business. Run thought experiments to test this before sinking years and money into it. Stay Objective. Don’t fall in love with your idea. Base your decisions on data. The worst time to realize you can’t be profitable is after launch. Now let’s apply this to hiring. Model It Out: Calculate the cost of hiring help at different levels of your business. Break down the costs of each hire, including salaries, benefits, and overheads. Align these costs with the revenue they are expected to generate. For each volume of business, determine how many employees you can afford and what their impact on revenue will be. Scale Smartly: Hire in phases. Initially, take on more roles yourself or hire part-time help. As your business grows and revenue increases, you can hire more full-time employees. Focus on efficiency before increasing headcount. Validate Your Assumptions: Ensure that hiring additional help will directly contribute to increased revenue or significantly reduce costs. If it doesn’t, rethink your strategy. Run the numbers and see if you can maintain your profit margins with the new hires. Stay Objective: Don’t hire based on gut feeling or desperation. Use data to make hiring decisions. Track the performance and ROI of each new hire. If they aren’t contributing to profitability, reassess their role or your hiring strategy. Key takeaways: → Model your costs meticulously and align them with expected revenue.  → Scale your hiring and production smartly, focusing on efficiency. → Always validate your assumptions with data and thought experiments. → Stay objective and use data to guide your hiring and business decisions.

OVERHEAD IS TRICKY – HOW MUCH IS IT? AND HOW TO ACCOUNT FOR IT IN EACH JOB! Overhead is a critical part of business, however managing that overhead cost can often be the difference between making money or not. If your earnings aren’t meeting your expectations, it is very likely your overhead is part of the problem. To win work the market sets the price they will accept, but you control the cost of your overhead by how you manage your business. It’s not as simple as saying, "This is what I bid and this is what my overhead costs are – accept it." That’s the beauty of the world we live in, right? You bid, others bid, and whoever wins the job gets it. Many companies know their business but fail to scale it effectively, whereas those that succeed at scaling understand not only their costs but also how to control them. So where do you start? With overhead. I recommend looking at what the business ACTUALLY needs right now and only add overhead costs when it is absolutely necessary. Waiting to add costs to the business is hard but the longer you can wait, the better and stronger financial stability for your business. For example, if you’re looking down your payroll and see a lot of family members, you need to ask yourself: are they the best fit for these roles? Is this role necessary? If they quit tomorrow, would I have to replace them? To understand your overhead, go through the last 12 months and track EVERY SINGLE EXPENSE. Categorize it as project-related or overhead. Once you know your total overhead, you can determine what % you will need to add to each future project to cover the cost. For example, if you’re spending $500K on overhead and doing $5M in work, then you must add 10% to every project you bid. When looking at overhead, there may be some hard pills to swallow. As a business owner myself, no one likes to cut staff. Reducing overhead doesn’t NEED to be letting people go. It may be adjusting pay, reviewing subscriptions, or expanding roles into other areas. There are other options, and it’s going to be hard, but remember you are doing this to 𝘀𝗰𝗮𝗹𝗲 𝘀𝘂𝗰𝗰𝗲𝘀𝘀𝗳𝘂𝗹𝗹𝘆. Once you have an understanding of your business overhead, our two friends’ margin and markup come into play. Now, a lot of people confuse margins with markup. Here’s how I break it down: Margin is what’s left after project costs. If you want a 20% margin, don’t just mark up costs by 20%. Divide costs by 80% to get the right contract price. For example, if you bid $960K with $800K in costs, that’s a $160K margin. But with 10% retainage, $96K is held back, leaving $64K in free cash flow. That’s a lot less than the $200K you might think if you’re confusing margin with markup. Margin – what’s left after project costs Markup – the amount you increase your cost for a project It’s crucial to know the difference, or you’ll come up short and wonder why. What do you use to track your overhead, margin, and markups on projects? And for your business?