Episode 32: Expenses That Shouldn’t Take Us By Surprise

One of the most fundamental parts of managing a business is accurate budgeting. There’s nothing worse than surprise expenses that throw our operations all out of whack. While we can’t plan for every possible contingency, there are some business expenses that surprise us, that we should have seen coming a mile away.
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A creative service business needs to be just as adept at managing their money as any other business. And while we might prefer to go heads down in the studio, unless we emerge and give proper attention to the business side of creativity, our profits may be going right down the drain. One of the most fundamental parts of managing our business is accurate budgeting. There’s nothing worse than surprise expenses that throw our operations all out of whack. While we can’t plan for every possible contingency, there are some business expenses that surprise us, that really, we should have seen coming a mile away.

I don’t know about you, but I subscribe to a lot of online platforms. Everything from Linkedin Sales Navigator, to Get Harvest for time keeping, and Teamwork for project management. Of course Adobe Creative Cloud and iStockphoto are a must. And most all these platforms offer two ways to buy, monthly or annual. You can save a decent percentage if you go for annual pricing. But then, once a year you’ll see a big charge hit your credit card. I once switched my CRM from one system to another and forgot to cancel the old one—until I saw a huge charge hit my credit card paying for another year I no longer needed.

Some of the expenses we have to incur, to run our businesses, are consistent and predictable. If you rent space you know, each month, what to budget. Other expenses may be predictable, like annual software subscriptions, but since they only occur annually, we might forget about them. Other kinds of expenses are both occasional, and highly scalable. For example, expenses for marketing, or for professional development. You might decide to attend either a marketing or professional development conference, incurring the costs of airfare, hotels, meals, not to mention conference fees, but you might only attend these kinds of events every so often, but when you do those expenses can be a big hit to your budget. And then, of course, there’s taxes.

That’s why, when you set a budget for your business, you have to think through all these different kinds of expenses, with differing frequencies, and variable costs. Not only should you plan for all these kinds of expenses, you should also be saving, and keeping track of your savings, for those expenses that only come due once a year.

Let me share with you how I structure my budgets, and if you downloaded that cash flow spreadsheet template I mentioned way back in episode four, you will have noticed that the expenses tab is broken up along these lines. I first establish what I label “Fixed expenses.” These are items that occur every month, and are either exactly the same every month, like rent, or highly predictable in cost, things like payroll, cell phone bills, and office supplies.

Then I maintain a separate section for what I label “Rollover Expenses.” Meaning I want to account for these expenses each month, but in most cases I won’t actually spend that money, I’ll just rollover the allocated amount from one month to the next, until these expenses come around. Annual software subscriptions are a perfect example of this category. By representing these expenses, as though they were monthly, rolling them over month by month, you’ll be building a representation of these costs, thus allocating funds for them when they come due. In the same way I budget a certain amount each month for conferences, legal services, professional development, and computer hardware replacement. Sooner or later I know I’ll spend this money, I just don’t know when.

Lastly, I maintain a subset of rollover expenses that I don’t just represent in my budget by rolling them over, I actually transfer these funds into a savings account because they tend to be larger amounts and predictably annual in occurrence. Such as savings for taxes, bonuses, and general savings.

If my office space gets flooded, which actually happened once, I might not have been able to see that coming. But my accountant’s bill should not catch me by surprise. Working through your expenses, and setting up a budget that captures all these different kinds of expenses, will keep you from surprises that really should not be surprising at all.

Until next week: don’t let the business of creativity overwhelm your creative business.