Let me guess… you’ve been overspending, forgetting all those recurring transactions you signed up for, and are wondering where all your money goes. Me too! And lately, I’ve realized it has a lot to do with me not being 100% clear on WHAT I’m spending my money on every month. Which is why I did a spending audit and cut out A LOT of expenses that were no longer serving my business.

This week on the Andi Smiles show I’m talking all about spending audits: what they are and how to do your own spending audit so you can declutter your expenses. I know- you’re already preparing yourself for a boring numbers chat or expecting a spending audit to be the biggest time suck of life.

But beyond just being important a spending audit can be fun and fast! And chances are you’re paying for things you’re not even using or need. It’s time for you to stop the overspending and start getting your money to make a bigger impact in your business.

Watch the video below to get all the nitty-gritty details or check out the recap under the video.

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How do you use the spending audit results? (3:15)

There are three main ways that you can do that.

#1 Save Money

One of the ways to use these results is to save money in your business by cutting out unnecessary expenses. We’re going to get real about that and we’re going to REALLY think about what’s necessary and what’s not to save ourselves some money.

This way of using the spending audit is for you if you find yourself scraping by every month. If you’re in a cycle where you’re barely able to pay your bills or able to pay yourself– then this is how you’ll use the spending audit.

#2: Reallocate for More Impact

This is for somebody that has enough cash flow and money to pay the bills. Your business is running pretty well, but you just don’t know if you’re spending money in the right places OR if the money you’re spending is making an impact on your business. Instead of reducing overall spending, you’ll be reallocating money to something else that will have a bigger impact in your business.

#3 Pre-work for Your Business Budget

This is a little bit more advanced. If you’re thinking about making a business budget a spending audit is a really good place to start. The spending audit is not the process for making a budget, but a lot of the work that you’re going to do in the spending audit is something you can use in your budgeting work as well. Think of it as a foundational layer.

organize business finances

How to Do a Spending Audit – Part 1 (6:23)

Now, let’s get to the really fun stuff! There are two phases of the spending audit. Phase 1 is all about recurring expenses. We’re just looking at those automatic recurring expenses that you have every month. Then in Phase 2, we’ll talk about your variable expenses.

Step #1: Set Your Goals (6:53)

Friend! You’ve got to set your goals. In this first step, you’ll decide what your financial goal is with the spending audit. There are a couple ways that you can look at this.

You can look at this like, “I want to reduce my monthly spending by $200 per month.”

You can also look at it by how much you want to cap your spending at like, “I only want to spend $500 a month in recurring expenses,” or “I want to cap my total business spending at $1500 a month.”

Have clearly defined goals in place before you begin. As you’re doing the spending audit you might have a hard time letting go of some of these expenses. Sometimes we get FOMO about letting go of expenses and how it’ll impact our business.

Setting your goals ahead of time gives you a guideline for your audit and how much you need to cut.

Step #2: Gather your information (09:05)

I recommend that you do a spending audit based on three months of data from your business. The reason we’re doing it based on three months is that we’ll be able to capture any quarterly expenses. You really want to make sure you’re not missing a beat. Here’s what you’ll need:

  • Online banking statements or transaction report from your bookkeeping system
  • Credit card transaction statements
  • PayPal transaction statements

When I say statements, I’m talking about getting statements for everywhere you spend money in your business. You can print them out if you prefer hard copies or you can just look at them on the screen. Step two is simply gathering three months of statements.  That’s easy. Right?

Step #3: Write down recurring expenses. (10:56)

Scan through your statements and every single time you see a recurring expense, write it down or document it in the spreadsheet that I give you. Here’s what you’ll want to write down.

  • The name of the expense (Who are you paying?)
  • The amount (How much it is?)
  • When it the expense comes out (Does it come out on the 5th or on the 15th?)

I’ll be honest. Writing down when the expense comes out doesn’t really affect the spending audit so much. It’s just helpful to know in general when money is coming out of your account so you have a sense of your cash flow. It gives you the ability to know if all of your big expenses come out on the fifth or not and if that’s the case, you’ve got to have money in the bank for that.

Step #4: Assign Your Expenses (12:10)

Now, this is where it gets real! Before you do step four make sure that you have finished your list of recurring expenses. Seriously guys. Do not pass go and do not collect $200 until you have done step three. Shout out to Monopoly!

Now that you have the entire list, you are going to go through every single item on that list and you’re going to assign it one of three categories.

  • Essential
  • Non-Essential
  • Not Needed

Essential is an expense you absolutely need to run your business. Here’s a good example of this. I wrote down Convertkit, which is my e-mail marketing platform, as an essential for my business. I run my business with my e-mail list and that’s a non-negotiable essential to me.

An essential expense can be your email marketing software or maybe you pay for Squarespace every month. Your website is pretty essential, right?

Then, there’s non-essential. I like to think about non-essential expenses as something that’s nice to have. These are things you could run your business without but it’s a nice thing to have.

When I did my spending audit, one of my non-essential items was Dubsado, which is a client management software. Honestly, I can run my business without Dubsado. I’ve done it in the past and I could do it again, but it’s nice to have an organized system for client management.

Another one of my non-essential items is LeadPages.  I love and use it all the time. Could I run my business without it? Sure, but it’s nice to have. Listing an expense as a nice to have item does not mean you’re immediately getting rid of it. It’s just good to understand how to prioritize these expenses.

The last category is Not Needed. These are things that you signed up for a long time ago, you’re not using them, and they’re just sucking money out of your account. It can also be things that you use very irregularly. If you’re not using something every month, I would call that not needed.

You can also look at things that you like to spend money on in your business but aren’t truly needed. These could be donations to charities, which is what I do, but honestly, those are not needed. While they are in line with my personal values, they’re not essential to running my business.

Again, just because it’s not needed doesn’t mean you’re getting rid of it. It just means that we’re understanding the priority of each expense.

Step #5: Decide what Actions You’ll Take (15:27)

This is where you look at every recurring expense and actually decide what action you’ll take for the best impact in your business. Will you keep it? Will you cancel it? Will you let it continue sucking money out of your account?

Anything that’s not needed, unless it’s a really special case is probably going to get canceled. If you’re not using it, cancel.

Another action you could take is to research alternatives.  Is there something less expensive that you could use as an alternative? Or could you downgrade your plan? How about switching to annual billing? These are just some of the different actions that you could take with these various expenses.

After you decide on what action you’re going to take, the next step is to write down your potential savings because you want to do this audit with a certain goal in mind.

You’re going to say, “Hey if I cancel this expense, I’m going to save $15 a month.” Look and see what the impact of taking this action is going to have on your overall financial picture. That’s really why we’re doing the spending audit- because we want your money to make a big impact.

Step #6: Schedule time to take action! (17:52)

Don’t write down that you’re going to cancel a bunch of stuff and never do it. The final step in this process is saying, “Ok. I have to cancel six things. That’s probably going to take me an hour. Friday for an hour I’m blocking out time to cancel these things.”

I want you to write it down AND take action. I really want you to reap the benefits of the spending audit which is to save money. And taking action is the key.

It’s Demo Time! (19:05)

Now, before we get into part 2, let’s do a little screen share demo. Check out the video above to view the spending audit demo and download your very own worksheet to follow along and work through the process with me.

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How to Do a Spending Audit – Part 2 (24:34)

Part one is really about assessing the recurring monthly expenses because we all know that those can get out of hand. Now, let’s move on to Part two of the spending audit. To be honest, part two of the spending audit is slightly more advanced than the recurring expense section in part one.

You do not have to do part two but if you have some bigger spending goals or you’re really kind of like, “I’ve really got to dig into the spending in my business,” then part two is going to be helpful for you.

Step #1: Set your goals (24:51)

This is just like the very first spending audit step in part one but in part two we’re looking at your variable expenses. We’re looking at broad spending in general not recurring expenses.

What’s your goal? Do you have an amount that you want to reduce your spending by because you realize you spend way too much money in your business? Maybe you know what your average revenue is every month and need to figure out how paying yourself. Once again- get clear on your goals.

Step #2: Get your year-to-date-numbers (25:33)

Step two is a little bit different than the first part. This time step two is getting your business’ year-to-date spending totals. AND you want this broken down by category. It isn’t enough to know that you spent $20,000 this year on expenses. You’ll need the breakdown by category.

If you’re using a bookkeeping program this is generated by running a year-to-date Profit and Loss Statement. If you don’t have this information, wait to do this part of the spending audit. Just know that you WILL need to gather this information at some point because that’s what you give to your tax preparer to file your taxes.

Step #3: Calculate your monthly spending per category (27:00)

Once you’ve gotten your year-to-date numbers broken down by category, calculate your monthly spending per category. Look at each category for the year and figure out your monthly spending average.

For example, you could look at your advertising category from a Profit and Loss statement that you ran for 10 months and say “Ok, I have spent $1000 total in advertising and promotion. That’s a hundred dollars a month.”

You’re simply figuring out what your monthly average for every category by taking the total and dividing it by the number of months. The tricky part about this is that you need to exclude the recurring expenses from Part 1. That’s why I had a section for categories in the recurring expenses part of the spreadsheet I showed you!

Step #4 Set goals on spending amounts (28:28)

After you figure out what your monthly spending average, set goal spending amounts for each category. Goal spending amounts can work one of two ways. One option is that they can be a monthly goal. Let’s say that you want to reduce how much you spend on books each month. You could set a goal to spend $20 per month on books.

The other option is that you set an annual goal. For example, you could set an annual budget for online courses. You decide to only spend $1,500 on courses for the entire year. That would be your overall budget goal.

Your goal setting approach can change depending on the category. Every single category won’t be the monthly budget option. Some may have annual budget goals too. It really depends on the category because that’s how our spending realistically works.

You can also look at it from both points of view. Here’s a good example of professional development.

Maybe you want to hire a monthly coach but you don’t want to spend more than $3,000 per year. If you divide $3,000 by 12 months, then you can align your monthly budget with your annual budget.

Step #5: Write down your action steps (30:48)

The last thing you’re going to do is write down your actions steps. These initial steps are a little bit different than the action steps we talked about in part one. In part one, the action steps were more like, “I’m going to cancel this thing. I’m going to keep that thing.”  The action steps in part two are more about HOW you’re setting personal boundaries around your spending.

Let’s go back to that book example.  If I say I only want to spend $20 per month on books, then my actions step is to buy no more than one book a month.  That’s a very clear guideline. Think of them less as action steps and more like spending guidelines.

Sometimes your action items can even be, “I’m going to look at my budget before I buy something.” Remember, this is all about setting you up for success. It’s making a plan about how you’ll be more intentional about your spending.

It’s part two edition of demo time! (34:08)

Check out the video above at the 34:08 timestamp to view the spending audit demo for part two. Don’t forget to download your very own worksheet to follow along and work through the process with me. The great part about this freebie is that the spreadsheet does the calculations for you!

It really does pay to take the time to do it and it only took me an hour to do this whole process. Imagine how much money you’re going to save!

That covers it. You can officially say goodbye to “Where’s my money?” syndrome and hello to business savings. Download my spending audit spreadsheet and start your journey to business savings this year.

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