Most founders focus their energy on the “top line”, driving sales and increasing revenue. It is the most visible sign of growth and the one that feels the most rewarding. However, many of these same founders are surprised to find that as their revenue doubles, their actual take-home profit barely budges.
They often describe a feeling of “leaking” money. The business is busy, the team is growing, and the projects are closing, yet the bank balance remains stagnant. It feels as though for every dollar brought in through the front door, eighty cents is quietly slipping out the back through a dozen different exits.
This isn’t usually the result of a single, catastrophic financial mistake. It is rarely a massive embezzlement or a failed million-dollar investment. Instead, it is “death by a thousand cuts”, a slow, invisible accumulation of inefficiencies that eventually compromises the health of the entire organization.
Why Expense Blindness is Common and Harmful
Expense control is often neglected because, in the early stages of a startup or SME, speed is prioritized over efficiency. When you are trying to survive, you buy whatever tool or service solves the immediate problem.
As the business scales, these “temporary” solutions become permanent fixtures. This issue is particularly harmful for three reasons:
- Margin Erosion: When expenses grow at the same rate as revenue (or faster), your profit margin shrinks. You end up working twice as hard for the same amount of money.
- The “Phantom” Overhead: Many costs become “locked in.” These are subscriptions, retainers, and services that no one is monitoring but everyone is paying for.
- Cultural Decay: If a founder is loose with the company’s capital, the team will be too. Waste becomes a cultural norm rather than an exception.
If left unchecked, poor expense control doesn’t just reduce profit; it removes the “cushion” your business needs to survive a market downturn. A lean business can pivot; a bloated one simply sinks.
Understanding the Core Concept: Fixed vs. Variable Costs
To regain control, you must stop looking at “expenses” as one giant bucket. You need to categorize them based on how they behave when your business moves.
Fixed Costs (The Price of Staying in the Room) These are the expenses you pay regardless of whether you sell £1 or £1,000,000
- Examples: Office rent, insurance, base salaries, and core software (like your accounting suite).
- The Risk: If your fixed costs are too high, your “break-even point” is also high. You have to move mountains just to hit zero.
Variable Costs (The Price of Playing the Game) These costs fluctuate based on your sales volume.
- Examples: Raw materials, shipping fees, sales commissions, and project-specific contractors.
- The Risk: If these aren’t managed, they can eat up your gross margin, meaning you lose money on every new sale you make.
The goal of expense control isn’t to spend £0. It is to ensure that every dollar spent is either “staying in the room” (fixed) or “playing the game” (variable) at maximum efficiency.
Real-World Business Scenario: The Scaled Agency
Consider “Apex Creative,” a design agency that grew from 4 to 12 employees in eighteen months. Their revenue climbed from £500,000 to £1.5 million. On paper, they were a success. However, their net profit stayed exactly the same as when they were a tiny team.
When we looked under the hood, we found three major leaks:
- Software Redundancy: They were paying for three different project management tools because different teams preferred different interfaces. Total waste: £2,000/month.
- The “Ghost” Freelancer: They had a developer on a £,2,000 monthly retainer for “maintenance” on a project that ended six months ago. No one told accounting to stop the payment.
- Unmanaged Variable Spend: To meet deadlines, project managers were overnighting materials at premium rates instead of planning three days in advance.
By identifying these leaks, Apex Creative didn’t just “save money”; they increased their profit margin by 12% without signing a single new client.
4 Practical Actions Founders Should Take
Effective expense control is a habit, not a one-time event. Here are the steps we recommend for every SME owner.
1. Perform a “Subscription Audit”
Export your credit card and bank statements from the last 90 days. Highlight every recurring digital charge. You will likely find at least 15% of these are for “seat licenses” for employees who have left, or tools that were used for a single project and forgotten. Cancel them immediately.
2. Implement the “Three-Quote Rule”
For any non-emergency expense over a certain threshold (e.g., £1,000), require the team to provide three competing quotes. This doesn’t just save money; it forces the team to justify why a specific vendor is the best choice, rather than the easiest one.
3. Review Your Vendor Terms Annually
Many founders set a price with a supplier in Year 1 and never look at it again. As you grow, your volume increases. You have more leverage than you did two years ago. Ask your primary vendors for a “loyalty discount” or a volume-based price break.
4. Establish Spending Authorities
One of the biggest causes of expense bloat is that too many people have the “keys to the safe.” Clearly define who can authorize spend and at what level. If a manager can spend £500 without approval but needs a Director for £5,000, you create a natural friction that prevents impulsive spending.
Common Mistakes Founders Make
In an attempt to “cut costs,” founders often make moves that actually damage the business:
- Cutting Growth Engines: Panic-cutting your marketing budget or sales commissions is like trying to save fuel by turning off the engine while you’re flying. You save money today but ensure a crash tomorrow.
- Ignoring the “Small” Stuff: Founders often think, “It’s just £40 a month.” But 20 “just £40” expenses is £9,600 a year. That is a significant portion of a junior employee’s salary or a major marketing campaign.
- Losing Track of Employee Reimbursements: Without a clear policy, “miscellaneous expenses” can become a black hole. Unchecked travel meals, premium flights, and unnecessary “office perks” add up to thousands in untracked spend.
- Failing to link Spend to Strategy: Every expense should serve a strategic goal. If you cannot explain how a cost helps you either “deliver to a customer” or “keep the lights on,” it is likely a candidate for removal.
Moving From Bloat to Efficiency
Expense control is not about being “cheap”, it is about being disciplined. It is about ensuring that the resources your business generates are being recycled back into growth, rather than evaporating into inefficiency.
At Finance by Enle, we often see that the difference between a business that struggles and one that dominates its market is the Operating Margin. By tightening your expense control, you widen that margin, giving you more capital to innovate, hire better talent, and weather economic storms.
For a broader look at how these internal controls fit into your overall financial health, read our guide on Cash Flow vs Profit: Why Profitable Businesses Still Run Out of Money.
Is your business leaking profit through unmonitored expenses? At Finance by Enle, we provide the fractional CFO oversight and rigorous financial analysis needed to stop the leaks and optimize your bottom line. Contact Us to schedule a comprehensive expense audit.
