Expense management and how to save

Jan 17, 2025 | General

Running a profitable business means monitoring costs. Many companies focus on generating more revenue, but sometimes, the best results come from examining how money leaves the business. Expense management is a methodical approach that helps you monitor spending, identify savings, and stay compliant with HMRC guidelines. This can directly impact profitability and give you greater peace of mind.

Below, we’ll break down the steps that owner-managed businesses in the UK can take to organise their expenses and keep them under control. We’ll also examine how a little planning can help you avoid overspending, make the most of tax reliefs, and maintain a healthy cashflow.

Why expense management matters

Business owners often juggle many tasks, leaving limited time for examining overheads. Expenses can quietly grow, from office rent and utility bills to small items like software subscriptions.

If those costs aren’t accurately tracked, paying for items or services that no longer serve the business is easy. Over time, overspending can shrink profits and cause issues when preparing for tax returns or VAT filings. According to the Office for National Statistics, the average UK small business has faced rising operational costs over the past few years, making staying alert more important than ever.

A structured approach to expense management helps you identify inefficiencies and reduce waste. It includes cost analysis, budgeting software, good record-keeping, and taking advantage of relevant tax allowances. Doing so protects your bottom line and free up money to reinvest in growth or pay down any existing debts.

Review and categorise your costs

A clear overview of your business spending patterns makes it easier to spot ways to save. Start by reviewing all costs for at least three months. This could involve downloading bank statements and categorising outgoings into sections like rent, supplies, staff costs, marketing, and software. Grouping them in this way reveals which areas are costing the most.

Many accounting tools can automatically place transactions into categories. This enables quick checks, removing the need for time-consuming manual work. Over the longer term, such categorisation builds an accurate data set that helps you spot patterns. For example, if you see a spike in your energy costs, it might be time to negotiate a new contract or explore greener solutions.

Adopt budgeting software and tools

Budgeting software can reduce admin tasks. In our experience, this software can automate invoice scanning, track spending in real-time, and even predict future cashflow based on your historical data. For instance, a construction firm might see that their materials spending is due to rise in the winter, allowing them to look into early-bird discounts or alternative suppliers.

We find that the best platforms offer live bank feeds and customisable categories. They can also set alerts if spending in a certain category exceeds a defined limit. That way, if your office supply bills jump in a single month, you’ll receive a notification and can investigate the cause straight away.

Negotiate better terms with suppliers

Many businesses set up a supplier relationship and leave it unchanged for years. However, rising material or shipping costs mean suppliers sometimes increase prices gradually. By reviewing your supplier contracts at least once a year, you can renegotiate more favourable terms.

Highlight your reliability as a customer. If you’ve been paying on time, your supplier may be keen to keep the relationship going. This gives you leverage to discuss discounts, extended payment terms, or combined deals for product bundles. For example, a manufacturing firm that purchases steel and aluminium from the same supplier could ask for a bulk discount by combining orders. If those negotiations aren’t successful, it may be time to look for a better fit elsewhere.

Keep an eye on compliance

Tax compliance is essential for all UK businesses. Keeping good records helps you identify deductible expenses and organise proof during an HMRC inquiry. By filing accurate records of expenses, you can make the most of any reliefs available to your sector.

This is also relevant for VAT. If your business is VAT-registered, ensure your expense records meet the documentation requirements. HMRC can request evidence for claims, including invoices, receipts, and digital copies of statements. Good record-keeping is more than ticking boxes – it prepares you for official checks.

Practical methods to reduce overheads

  1. Consolidate subscriptions
    Take stock of software tools, magazine subscriptions, or other recurring services. Over time, multiple subscriptions can overlap in functionality. You may find that you’re paying twice for similar software or that you’re no longer using certain applications. Cancel any redundant subscriptions or combine them into one package if possible.
  2. Review insurance policies
    Insurance is an overhead that shouldn’t be overlooked. However, it’s always worth reviewing policies annually. Premiums might have increased since you first took out cover. By speaking with your provider, you may find they can offer a better deal.
  3. Tweak your energy consumption
    Simple changes help reduce energy costs. Switch to LED bulbs in warehouses or offices, and encourage staff to power down equipment when it’s not in use. You could also explore the Government’s energy efficiency schemes, which might offer tax incentives or grants for upgrading to more efficient systems.
  4. Outsource when it’s sensible
    Instead of hiring full-time staff for tasks that aren’t regular, look at outsourcing options. This could apply to IT support, bookkeeping, or social media management. Outsourcing allows you to pay only for the services you need, often making it more cost-effective for smaller or seasonal tasks.

Seek professional expense management guidance

While many cost reductions are straightforward, you may still need professional advice to avoid cutting corners or running into issues with HMRC. If you’re unsure which expenses are deductible or how to maintain the correct documentation, consider speaking with an accountant who understands your industry.

At James Scott, we’re here to help you keep an eye on overheads, stay tax-compliant, and plan for the future. By working together, you can focus on growing your business while staying confident that your expenses are being appropriately managed.

Looking ahead

Expense management is a practical way to protect profit margins and build long-term stability. By categorising costs, using budgeting tools, reviewing supplier terms, and staying up to date with HMRC requirements, your business can free up funds for more important priorities. A healthier bottom line offers greater flexibility, allowing you to reinvest in staff, innovation, or new equipment.

We’d be happy to share insights and strategies specific to your sector if you need tailored guidance. We believe that well-managed expenses will keep you out of trouble with tax authorities and give you a valuable edge over your competitors.

Need guidance with your expense management? We can help. Contact us today.

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