Most organizations waste at least some money, usually without realizing it. The bigger the organization, the more opportunities for wasteful spending there are.
So what are the most common ways that businesses waste money? And what are you supposed to do about it?
The Most Common Ways Businesses Waste Money
These are some of the most common ways that businesses waste money:
1. Excessive employees. Employees are necessary for most businesses to function, but there’s a good chance you’ve hired too many. Each employee in your business is a significant expense, so it’s important to be sure that each employee is contributing at least as much as what they’re taking from the company. Startups often hire too quickly and companies sometimes grow too fast, resulting in a surplus of employees before the business is ready for them. Instead, hire slowly and deliberately, keeping your workforce tight.
2. Overtime. Overtime can also be a killer expense, and it’s usually an unnecessary one. If there’s so much work that overtime becomes a real consideration, you should consider tightening up your workflows, hiring new people, or working with contractors to close those gaps.
3. Software subscriptions. Software can make your business more capable, more productive, and more efficient. But not every piece of software in your organization is necessary, and some can even be detrimental. Excessive and expensive software subscriptions can hurt your finances and ultimately jeopardize your software return on investment (ROI).
4. Big offices. Your office lease is likely one of your biggest overhead expenses, and that’s not even counting secondary office expenses like supplies. If you have a bigger office than you need, you’re probably wasting money. Consider going remote, downsizing, or creating a hybrid business that allows you to reduce your office expenses.
5. Poor warranty tracking. Warranty reimbursements, in some businesses, can present a massive financial advantage. Properly tracking warranties, negotiating for better warranties, and pursuing every available warranty reimbursement can help you keep the money flowing in.
6. Travel and expense reimbursements. Travel and expense reimbursements can snowball out of control. Some expenses are unavoidable, but you should keep a tight leash on these somewhat superfluous items by imposing strict protocols and reining in chronic offenders.
7. Banking/financial fees. Most businesses need bank accounts and a host of financial services, nearly all of which are going to be associated with fees. Maintenance fees, overdraft fees, and recurring interest can add up to a significant amount, so keep these expenses in check. Be cautious about which financial products you use, and always do your due diligence to see which financial institutions can offer you the best deals.
8. Unnecessary assets. Some businesses overspend on unnecessary assets out of a sense of vanity or perceived necessity. For example, you probably don’t need a lavish water fountain in the atrium of your office building – at least, not until you’ve reached a point of success that this expense becomes trivial.
9. Inventory. In some businesses, excessive inventory spending can also be a problem. If you buy too many raw materials or products to sell, and you don’t have an outlet for them, you could be stuck shouldering the burden of these costs. Diligent and cautious inventory acquisition can help mitigate this risk.
10. Meetings. You might not think of meetings as an expense, but unfortunately, that’s part of the problem. You pay for each meeting you hold in the form of the wages and salaries of meeting participants – and the sad reality is that more than half of meetings are a waste of time. There are many ways that meetings waste time, such as by losing focus, not having a specific goal, or including too many participants. The best course of action is to use a multi-pronged approach to make sure each meeting is valuable for the organization. You can do this by limiting the number of meetings you hold, limiting the amount of time you spend in meetings, limiting meeting participants, and making sure that each meeting is tied to a specific objective and on topic.
Toward a More Cost Efficient Business
Ideally, every dollar your business spends would be spent on something productive and capable of helping you achieve your long-term goals. Unfortunately, this is not a reasonable standard. There’s no such thing as perfection in life or business, and you’re always going to have at least some instances of wasted or excessive spending.
Still, by better understanding the primary sources of monetary waste in your business, and by better implementing cost optimization standards, you can put your business in a much better overall financial position.
With greater cost efficiency and a focus on eliminating waste, you can keep your business profitable.
