How to Manage Your Expenses

The Executive’s Guide to Carpet Cleaning Part I: FINANCES

 The Books Part II: Expenses

(This is Day 2 of a three-day crash course in accounting basics for carpet cleaners. To check out Day 1, click here.)

Managing your expenses is the key to profitability. Let’s look at an example.

Both Acme Cleaning Co. and Best Cleaners have an average invoice of $250. They both complete about 40 jobs per month. But Acme is the only company that makes a profit.

Best spends $10,000 per month on general expenses, but Acme only spends $9,000. The difference might seem small, yet Acme has access to ready cash and knows that their base expenses are under control.

In the long run, that profit can be reinvested in the company, which means less debt and a more stable business long-term.

That’s important in the carpet-cleaning industry. Let’s face it–this business is seasonal. Meaning that sometimes you’ll have a lot of work and sometime–well, you won’t.

Unless you can reduce your expenses during the slow season, you run the risk of operating at a loss, which could lead to mounting debt or worse. The problem is deciding what to spend and when.

Base Expenses:You should know exactly what your monthly base expenses are. These consist of salaries, withdrawals, guaranteed payments for owner(s), loan payments, utilities, rent, etc.–basically, the minimum price you pay to keep the doors open.

Your utilities could be costing you more than you think they are.

If you have yet to separate your personal and business finances, then you may be missing out on the tax benefits of tracking these expenses.

No matter what your bookkeeping strategy (or lack thereof), you should know what your base cost is–and only increase it if you’re ready to do so.

Get a spreadsheet or a piece of paper right now and write down all your base expenses. Add them up, then tape the total to your bathroom mirror. This is the number you MUST meet every month.

Job-Related Expenses: Now that you have your base expenses figured out, what about the cost of doing a job? These expenses are tracked separately from base expenses because if there is no job, there is no cost.

Additionally, this number changes very little in comparison to the size of the job (except in the case of restoration work).

Most of your cost comes from getting set up to clean that first room, which is why it’s always a good idea to ask your customers if there’s anything else you can do for them while you’re already on site.

Once you understand the cost of your job, you can better price your services. I have coached many cleaners that actually lost money with nearly every job they completed.

They didn’t know their true expenses until they sat down and figured them out.

Some of these expenses are easy to identify, such as gas, chemicals, and equipment. Other expenses, like salaries, can be trickier to calculate.

Let's face it, gas isn't getting any cheaper.

Just be sure not to double up your expenses, or worse, leave something out. QuickBooks can help you with this if you set it up correctly.

Marketing Expenses: How much should you spend on marketing? A good general rule of thumb for an established business is to spend 8 to 10 percent of your yearly gross revenue.

If you are projecting $120,000 in income this year, then your marketing expenses should be around $12,000. If you’re new, then you must spend more.

Most new business owners see marketing as one of the first expenses to cut when they need to save a few bucks. Don’t do it. It may not affect your business in the short-term, but you could permanently damage your brand.

If you feel that your current marketing efforts are not really working, then move the money to different marketing campaign.

Wrap-Up: Tracking your expenses means managing your expenses. And, when you manage your expenses, you control them.

Without that control, it’s extremely unlikely you will ever grow your business the way you want to. With that control, you will always know where you stand, for better or for worse.

Keep in mind that if you’re tracking your numbers well, you can always review and reduce. I suggest looking for ways you can cut your total expenses by 5 percent each year. It’s a small number, but it could mean big savings in the long run.

Want to get control of your money? Try ServiceMonster for free today!

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  1. August 11, 2011 at 1:01 pm

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