Title: Tips for Streamlining Expenses and Maximizing Growth Ft. Morgan Chavis
“I’m so glad that you have this segment. I am in the process of scaling my business. We are in the phases of sourcing businesses up to fill our micro storefront spaces, and in that, I think it’s really easy to spend a lot of money. So I’d be happy to know how a CFO, like yourself can impact eliminating waste?”
- Morgan Chavis, The Lusso Brand
Scaling a business can be an exciting but challenging endeavor. As you expand your operations and open new avenues for revenue, it becomes crucial to manage your finances effectively and eliminate any wasteful spending. In this blog post, we will explore strategies to streamline expenses and maximize growth during the scaling process. We will draw insights from a conversation with Morgan Chavez, CEO of Lusso Brands, as she shares her experience and seeks guidance from a CFO. Let’s dive in!
Separate Books and Budgets:
When scaling your business, it is essential to treat different entities or locations as separate entities, even if they operate under the same tax ID number. This allows you to analyze the financials of each business unit individually, identifying areas where expenses can be optimized. By utilizing a highlighter review exercise, you can classify expenses into green (essential), yellow (questionable), and red (unnecessary). This exercise helps you identify potential areas of waste and develop a plan to eliminate or optimize those expenses.
Conduct Regular Expense Audits:
Performing quarterly expense audits is a best practice to maintain financial discipline and prevent money leaks in your business. The audit involves analyzing each expense line item to determine its relevance and impact on your business operations. Expenses highlighted in yellow can be further investigated, while those highlighted in red should be reviewed for potential cancellation or reduction. By diligently reviewing your expenses, you can identify unnecessary costs and reallocate resources to more impactful areas of your business.
Strategic Investment vs. Unnecessary Expenses:
“A lot of times business owners get tripped up because they say, ‘when I look at my profit and loss statement, it shows that I’m making a profit. But when I look at my bank account, there’s no money in there.’ There are certain expenses that the business has to pay cash that the business pays, but they don’t show up on your profit and loss statement.”
- Andrea Jenson, The Cash Flow CFO
A common misconception among business owners is that all expenses are bad. However, it’s crucial to differentiate between strategic investments and unnecessary expenditures. Strategic investments are expenses that have the potential to generate a significant return on investment (ROI). Whether it’s marketing campaigns, process optimization tools, or employee training, these investments should be evaluated based on their ability to enhance revenue or reduce costs in the long run. On the other hand, unnecessary expenses are those that do not align with your business goals or provide tangible benefits. Carefully scrutinize each expense and prioritize those that contribute to growth and profitability.
Budget Allocation for New Ventures:
When expanding your business with new ventures, such as additional brick-and-mortar locations or rental spaces, it’s crucial to develop a budget that aligns with your revenue streams. Start by identifying the potential revenue sources for the new venture, such as rental income, commissions, or service fees. Allocate a portion of your revenue to cover cost of goods sold, marketing efforts, general administrative expenses, and profit margins. This budget allocation approach helps ensure that you have a clear understanding of how each dollar earned will be distributed and allows you to make informed decisions about resource allocation.
Scaling your business requires careful financial management and a critical eye for eliminating waste. By implementing the strategies discussed above, you can streamline expenses, maximize growth, and create a solid foundation for success. Remember to regularly review your expenses, categorize them, and make informed decisions about strategic investments versus unnecessary expenditures. With a mindful approach to financial management, you can scale your business while maintaining profitability and sustainability.
Learn more about Morgan Chavis:
https://www.linkedin.com/in/lussoceo/
https://www.instagram.com/lussoceo/
https://www.thelussobrand.com/
