Business expenses are the costs associated with running a company. As an entrepreneur, it’s essential that you are familiar with the different types of small business expenses you need to bear during day-to-day operations. You must also learn the most efficient and cost-effective ways to make payments.
This article will briefly describe several common types of business expenses. Then, we’ll tell you how to manage these expenses in a way that will save you time while helping you keep tabs on the money going out vs. your budget.
What qualifies as a business expense?
Before we go into the details about the different small business payments that company owners need to know about, let’s take a minute to discuss what qualifies as a business expense.
The key thing to remember is that a business expense must add value to your enterprise. For example, the wages you pay your employees is a business expense and so is the rent you pay the landlord for your office, storefront, or warehouse.
Some business expenses are tax deductible––they help you reduce the tax your company needs to pay, while personal expenses do not.
Basically any one-time or recurring business bill you pay counts as a business expense, in addition to operational expenses like payroll, rent, utilities, and more.
Most common small business expenses
Company owners know that while running a business, there are many types of bills to pay. In this section, we’ll tell you a little about the most common ones and the role these payments play in helping you conduct operations successfully.
Payroll and benefits
Paying wages on time is essential to maintain employee morale. If your people get paid on a regular schedule, they are more likely to continue doing great work. Productivity can also increase, the atmosphere within your organization will be positive, and you’ll find it easier to meet your company goals.
Mortgage/rent and utilities
Your lease or rental agreement will specify the date by which rent is payable. Non-payment could result in late fees or even an eviction notice.
Paying utility bills promptly is equally important. If you don’t pay electricity, gas, internet, or water bills, the utility provider could shut off the service. These are the last things any business owner wants to face, so it’s crucial to make these payments on time.
Equipment and materials
Business equipment and materials are usually categorized as a fixed asset––an asset that is purchased for long-term use.
If you’re in the construction industry, these may include bulldozers, dump trucks, cranes, and excavators. You also may need various materials like steel, wood, stone, and cement for projects, so those could become a recurring expense.
If you’re in the restaurant industry, you’ll likely need ovens, freezers, food processors, and other equipment for the kitchen.
Depending on which industry you operate in, your business will need specific equipment and materials to run effectively.
Inventory refers to the stock or merchandise maintained for sale to customers. For example, a retail or ecommerce company that sells apparel wouldn’t be able to get through a busy holiday season without the proper amount of inventory for the holiday rush.
Marketing is the lifeblood of any small business, especially if you have a digital presence. You’ll need to allocate funds to create a good website and develop your brand. Here’s a list of some of the other expenses you should include in your marketing budget:
- Search engine optimization (SEO)
- Email campaigns and customer journeys
- Social media management and promotion
- Content marketing
- Paid search and social advertising
As a small business owner, you may need to travel to raise funds, visit out-of-town clients, and attend industry conventions, which are all vital to your growing business. Flights or train tickets, car expenses, and hotel bills are some typical travel costs that can add up, not to mention meals while you’re on the road. Most business travel costs are tax-deductible, however, according to IRS rules, you can’t deduct sums that are “lavish or extravagant, or for personal purposes.”
Your small business must be adequately insured. Take the time to pick the type of business insurance you need. A good starting point is to consider purchasing general liability insurance, product liability insurance, and professional liability insurance, though certain industries may also require property, worker’s comp, and vehicle insurance.
Small business owners should be well versed on federal, state, and local tax requirements. Estimated income taxes are due on April 15, June 15, September 15, and January 15. You could be charged a penalty if you don’t pay these taxes on time. So, make sure that you set aside enough money for tax payments in your budget.
In addition to income tax, your small business may need to pay Social Security and Medicare, employment, and sales taxes. Familiarizing yourself with the various taxes that are applicable to your business is a great way to stay on top of your tax liability.
How to manage small business expenses
First and foremost: keep your business and personal expenses separate. Doing this will help you track your company’s cash flow more effectively. You’ll also be glad you separated your personal finances from business finances when tax season comes around. Remember that only business expenses are tax deductible. If you’ve used the same bank account for both business and personal expenses, you would need to analyze each entry to classify it correctly.
The best thing to do would be to open a business checking account that offers sub-accounts. Features like sub-accounts help you manage your budget more effectively. By dedicating a different sub-account for things like payroll and taxes, you can set aside the funds you need to cover your team’s wages and your company’s tax liabilities.
Paying your business bills online
If you already pay many of your business bills online, find a checking account that offers a business bill pay platform. This feature allows you to set up one-time or recurring payments, which saves you time and ensures you never miss a payment. Some bill pay platforms also let you pay bills by credit card, even if the vendor doesn’t accept this form of payment. Using this method to pay your bills is an excellent way to increase your cash flow and give yourself the opportunity to earn credit card rewards.