It won’t be incorrect to state that some trivial and unnecessary expenses on the balance sheet get ignored during business reviews. The impact of saving such expenses is so miniscule that the management does not bother reviewing them. However, I recommend you question every single line item. What seems trivial may have a very significant impact.
For the sake of this argument, we will consider the following scenario:
ABC Pvt. Ltd. is a small trading company with an annual turnover of INR 10.80 Mn.
Their total operating cost is approximately INR 6.90 Mn. ABC uses a sales CRM for managing leads and sales opportunities. They have 12 licenses for the CRM and pay INR 750 per user per month.
For the past 18 months, they have had 10 active users. 2 licenses are not being used, however they continue paying for all 12 users.
| Unutilized CRM Licenses | 2 |
| Total annual cost for these 2 users | INR 18,000 |
| Impact on overall cost | 0.26% |
A cost impact of 0.26% is too trivial to be discussed.
However, let us look at the opportunity cost. Given below is the lead conversion report for ABC Pvt. Ltd. for past three years:
| Cost per lead (CPL) | INR 450 |
| Conversion % | 12% |
| Average annual revenue per client | INR 308,571 |
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Alternative Uses of the Fund
If the management decides to utilize the INR 18000 paid for the 2 unused CRM licenses for lead generation:
| Number of new leads (forecast) | 40 |
| New deals possible at 12% conversion (forecast) | 5 |
| Additional revenue potential (upto) | INR 1.48 million |
The additional revenue potential of up to INR 1.48 Mn is approximately 14% of their current annual turnover.
As a Sales Head or manager, if you have tried asking for additional funds to achieve targets, what has been the usual response? However, the response would mostly be affirmative if you would suggest utilizing unused funds for a better and productive reason.
Now it is important to understand that this is a theoretical forecast of potential revenue if the amount paid for unused licenses was to be utilized for marketing. The actual results could have been much smaller or much bigger. The point I’d like to highlight is that every line item should be reviewed in the overall context. Every penny matters.
Alternative Use of Expenses in the Balance Sheets
I would like to suggest some alternative uses of the saved funds, as the previous example may seem unrealistic to some.
What if the company decided to surrender the 2 unused licenses:
| Annual savings | INR 18,000 |
| Number of employees in the sales team | 10 |
| Additional funds for the sales team per employee | INR 1,800 |
Instead of asking for additional funds for the sales department, the sales director or manager could easily utilize the saved amount for:
- 2 online skill development courses for each member of the sales team (Average price of relevant online courses on sites such as Udemy is approx. INR 750)
- One movie per month for the entire team as an engagement activity
- A pizza party per month for the entire sales team
- Printed branded shirts for the sales team
The same funds if saved could be utilized for employee engagement or skill development of the existing team.
Best Practices for Small Businesses to Control Unnecessary Spends
Here are some best practices for small businesses to control unnecessary expenses:
1. Track Your Spending:
This is like knowing where your money goes! Keep receipts and write down everything you spend money on, like rent, supplies, and travel. There are free apps that can help you track this too.
2. Make a Budget:
This is your spending plan. Once you know where your money goes, decide how much you can spend on each thing. This helps you avoid spending more than you have.
3. Ask Yourself “Do I Need This?”:
Before buying something, especially something expensive, stop and think: “Will this really help my business?” If the answer is no, skip it!
4. Shop Around:
Don’t just buy the first thing you see. Compare prices from different suppliers before buying office supplies, equipment, or even services.
5. Negotiate:
Don’t be afraid to ask for a better price on things you need, like rent, phone plans, or internet service. Be polite but firm!
6. Look for Free or Cheaper Alternatives:
Can you use free online tools instead of expensive software? Can you hold meetings online instead of traveling? Be creative!
7. Review Your Bills Regularly:
Sometimes prices go up on things you already have, like phone plans or internet. Call and see if you can get a better deal or switch providers.
8. Be Smart About Utilities:
Turn off lights and electronics when not in use. Adjust the thermostat to save on heating and cooling costs. Small changes add up!
9. Avoid Impulse Buying:
Don’t buy things you don’t need just because they’re on sale. Stick to your budget and avoid unnecessary temptations.
10. Get Your Team Involved:
Encourage your employees to be mindful of spending. Ask for their ideas on how to save money. A team effort is a winning effort!
By following these simple tips, small businesses can control unnecessary expenses and keep more money in their pockets!
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