A money leak means money that goes out of the business that is unnecessary. While these spendings may seem small and insignificant, once they add up, the amount of money spent is actually significant. This step by step guide may help a business owner systematically eliminate money leaks.
How to Identify Money Leaks
1. Pull out all the business’s financial records.
To identify a business’s money leaks, take out the business’s financial records in the past 12 months. These records include business bank statements and credit card statements. The point is to take out all the business’s financial records where business spending is happening in the past year because there are spendings that occur annually. It is also highly recommended to do this using physical copies of the statements.
2. Go through each line of expenditure item from each statement.
During this step, a business owner needs to ask themselves the following questions:
- Is this expenditure 100% necessary to keep my business running and operating?
- Can I run the business without this?
- Is it possible to run the business without this expense?
- Is it legally allowed to run the business without this expense?
If the spending is 100% necessary and not just something that’s nice to have, encircle the item with a red pen. Do this for every necessary expenditure item for all of the business’s statements.
3. Analyze if recurring spendings are delivering the business a positive return.
For recurring transactions, a business owner must ask themselves if the expense is delivering the business a positive return or a positive return of investment (ROI).
Not only does this apply to supplies and equipment but also the business’s workforce; is each team member allowing the business owner to save time or free up some time for them to be able to generate and bring in more money?
Again, if the expense is 100% necessary and not just something that’s nice to have, encircle the item with a red pen.
4. Identifying the Money Leaks.
After going through all the spending records, the business will now have items that were not encircled or highlighted. These are the Money Leaks. These spendings are not serving the business, are unnecessary to keep it running, and are not delivering the business positive ROI.
Now that a business owner has identified the Money Leaks, they can also start analyzing whether these spendings are still nice to have. These questions may help in this step:
- Is this a nice indulgent thing to have in the business?
- Will getting rid of this allow the business to bring more money home?
The goal in this step is for every business owner to see that there is a choice they need to make: to take home more money or to keep spending on the identified nice-to-have item.
A Money Leak is an unnecessary money spent by a business. In order to identify if a business has Money Leaks, a business owner has to study their business bank statements and credit card statements in the past year and analyze how necessary each expenditure item is. Once essential and indulgent elements have been identified, a business owner has to choose whether the business will take home more money, or they’ll keep spending on the nice-to-have item.
For more information about this matter, be sure to check out Episode 006 of Uncover Wealth Radio. If you’ve missed the LIVE broadcast, you can always revisit the episode here on our website, Annette & Co.