2021 is quickly coming to an end, and businesses have certainly had a tough hurdle to leap through since the outbreak of coronavirus. Due to the global lockdown, a lower consumer sentiment has been observed all around the world, adversely impacting the sales of small to medium businesses, and even large corporations, in industries like retail, gaming, hospitality, airlines, restaurants, etc. Unfortunately, some businesses couldn’t survive through 2021 either, with a notable example being Virgin Australia, an Australian airline that had to file insolvency in April last year.

Today, most business owners tend to place a heavy focus on the top line of the statement of profit or loss and gross profit margin, which is calculated by deducting the cost of sales from sales, and although these are important to attend to, what sustains a business is seeing the full picture of its expenses. Because expenses account for such a substantial amount of a business’s cash outflow, knowing what is happening with them gives you a full picture on your cash outflow, allowing you to make better decisions for your business. With a lower sales level and less potential cash inflow in the coming future, business owners need to have more control over where their money is being spent.

An expense analysis of your business can prove to be just as important as achieving growth in your sales:

Understand better to plan better

By knowing what your expenses consist of and performing a historical analysis of the change in its composition, you will have a clear overview of whether your money is being used in the right places.

Liquidity improvement

Being aware of whether an expense is paid for in advance or still needs to be paid for with credit terms can greatly assist you in optimising your short-term liquidity.

Resource allocation

A comprehensive expense analysis demonstrates whether expenses can support growth in revenue generation, and it indicates which area the money should go to for business development

We all know that reaching a breakthrough in today’s financial environment with the uncertainty of when the economy will recover is no easy task, and despite the world starting to open back up, your business will still greatly benefit from incorporating an expense analysis to understand your cash outflow better. So to avoid falling into the risk of financial distress because of unfavourable sales growth and liquidity problems, start tracking your operating costs and find peace of mind knowing that your business is headed in the right direction, ready to withstand whatever comes in this economy.