What is a Business Expense?

How to track and control business expenses?

Business expenses are those types of expenses that are needed to run smooth business operations. The business expenses hold a significant space on the statement of Profit and Loss. You get to know about the company's net income only after considering the business expenses from the business revenue. Each business needs to track and make categories of each of the expenses incurred. Some expenses are done to save tax, like donations.

List of deductible business expenses:

• Utilities
• Rent
• Insurance
• Software purchases
• Bank interest and fees
• Furniture purchases
• Meals
• Supplies
• Travel and expenses
• Commissions and Fees
• Employee education and retirement plans
• Investing in Employee benefit scheme
• Equipment rentals
• Legal fees
• Advertising
• Office equipment
• Maintenance and repair

Small business expenses list that is easily controllable:

• Office space
• Security system
• Repair and maintenance
• Mortgage interest
• Paying off multiple property taxes
• Insurance

A detailed explanation of major business expenses

A good businessman always tries their best to keep expenses incurred less than sales to make the business profitable. But for the smooth running of the business, some expenses are unavoidable. Here is the list of allowable business expenses for taxes:

1. Payment of wages and salaries to workers

A large portion of business expenses is spent on paying salaries and wages to employees according to the company's payroll system. Apart from paying monthly salaries, other benefits like bonuses are paid to employees as a token of appreciation and keeping them motivated at the workplace. To control and track these expenses, it is advisable to set up a good and disciplined payroll system as it helps in avoiding or facing later complications.

2. Rental Cost

You need to take office space on rent and have to pay rent each month as a part of business expenses. It is a must to understand that rent paid for availing of office space holds up a large percentage of annual and monthly expenses. The main benefit of taking office space on rent is that in case the business is facing losses, you can immediately vacate the place.

3. Mortgage interest

It is a kind of business expense incurred in case the business owner has applied for a property loan. The only benefit of being involved in such a cost is that it saves you from paying rental income, and you will get your own space to run the business operations. But advice is that when the business is at the initial level, do not get involved in loans.

4. Accounting expenses

These are unavoidable business expenses. It is a must for each business to track the expenses and office. So, it is a must to hire finance experts to do that complex job. In case your business is small, you can purchase accounting software rather than hiring a full-fledged accounts team. If a business operation is huge, expenses are incurred both on buying software and recruiting accounts specialists.

5. Expenses incurred on employee training

For running smooth business operations and keeping the business up to date, according to market trends, employee training programs are essential. Every day technology gets updated, modes of working are changing, and people are adopting advanced strategies. To understand all these things, employee training is the only way.

That is why companies prefer to invest huge portions of money in offering training courses to their employees. Companies set up their training departments for the same. These expenses are not controllable to much extent; the only way to keep it under budget is; instead of setting up training departments, you can take the help of external institutions to provide specialised training to the employees according to the latest market trends.

6. Office expenses

It is the kind of expenses that are mandated to fulfil the requirements of running a business and expanding its reach, like creating a website, purchasing of the domain name, hardware cost, purchasing of laptops, landline connections, internet services, and email accounts for all employees under the official name.

Apart from that, paying to lower-level workers like sweepers, security guards, and office assistants. These are the allowable small business expenses required in case your business is large.

7. Office supplies

It includes expenses incurred on purchasing tangible traditional items like paper clips, pens, pencils, CDS, printers, ink cartridges to run an office. These are the supplies used daily. Apart from that, there are other basic requirements of making the office clean and hygienic by purchasing a janitorial supply, office furniture, and maintenance supplies. These are also part of unavoidable and most essential office necessities.

8. Expenses incurred on business marketing

Spending on marketing is a must for businesses to expand their reach. In this cut-throat environment, it is a must to advertise and do the marketing of products and services. The marketing budget is a part of every business expense. Social media is one of the powerful media platforms.

If strategies created on social media are planned wisely, one can create wonders on less budget. Other platforms used for advertising and marketing are advertisements on Television, newspapers, handouts, or banners. Among all, most businesses prefer to go with digital marketing and social media marketing. It is one of the best and cost-effective ways of reaching your business to heights.

9. Expenses incurred on delivery and freight

The expenses incurred on delivery and freight are unavoidable business expenses. If your work required a lot of supplies, it would result in incurring delivery and freight expenses. It also includes postage and courier charges. The product or services reach the desired audiences through freight and delivery. The only way to avoid overspending is by keeping a small budget for the same at the start of each financial year.

10. Expenses in taking business insurance

Risk and business go hand in hand. Spending money on business insurance is unavoidable. It acts as a business saviour at times of any emergency, be it related to natural calamities, accidental, or financing contingencies. Before making a profit and loss statement, it is necessary to buy a separate plan, both for business insurance and employee insurance.

Tips for controlling business expenses

Track your expenses regularly for maintaining tight control on business expenses like both fixed and variables. One can prepare varied strategies to control the cost. Here are some of them:

1. Make a sound financial plan

Properly evaluate business needs and requirements, then make a financial plan category-wise. Create a business expenses list based on the evaluation.

2. Keep a close eye on all the business expenses

You only plan the future expenses well if you are aware of historical costs. Collect the history data before making future business expenses plans.

3. Learn to manage the variable cost

You should be aware of the past variable expenses of the company. It will help in calculating the sales percentage.

4. Adopt the best of technologies

Using the best of technologies is one the easiest ways of reducing business expenses, improving business efficiency, and cost reduction.

5. Offer an incentive to employees who help in reducing business expenses

Reward all the employees for making strategies of reducing spending to run the business. It helps in creating a culture of zero-waste within the organisation. It helps in motivating all the staff members to convert the business into a profitable venture.

Conclusion

Tracking and controlling business expenses become less expensive if you have the right tools. OkCredit has expertise in ledger accounting, & bookkeeping that can help your business. It helps in keeping a close eye on your business spending. We make sure that you end up paying fewer taxes and earn more revenue.

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FAQs

Q. How are small businesses keeping track of business expenses?

Ans. Small businesses keeping track of business expenses are:

• When you start a business, create a business account for the separation of personal and business funds.
• Choose the accounting method. As there are mainly two accounting methods, one is a cash basis, and the other is an accrual basis.
• Track all the expenses month-wise using a spreadsheet, recruiting a bookkeeper, or with the help of accounting software.
• Track your business performance.

Q. What do you mean by business expenses?

Ans. The business expenses are those which are incurred for the smooth running of business operations—expenses like wages, salaries, or any of the inventory purchases.

Q. What are the common categories of business expenses?

Ans. The common categories of business expenses are:

• Fixed expenses: Insurance, salaries, rent, depreciation, mortgages
• Variable expenses: Inventory commissions or credit card fees
• The interest levied on using the business credit card monthly
• Depreciation