A List of Expenses Every Small Business Owner Needs to Keep in Mind

By: First Union | Date:

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A List of Expenses Every Small Business Owner Needs to Keep in Mind

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Regardless of the industry or type of business you own, there is one thing you always need to keep in the forefront of your mind—the expenses. They can range from the more complex expenses like those associated with taxes, licensing, franchising if applicable, to the basic expenses such as electricity and Wi-Fi. The point is you need to stay on top of your business and capital expenses and maintain organization in regard to payment schedules—falling behind could be crushing to your company.

Understanding the Nature of the Business Expense

The good thing about a business expense is that for the most part, the bulk of them can be written off come tax time. What exactly equates to a tax-deductible expense…According to the IRS, the expense itself must be both ordinary and necessary. So for example, such an expense could be office rent, your interest on a business loan, insurance, state taxes. Because essentially you cannot operate your business without paying these things, they are in fact tax deductible. Additionally, items such as client lunches, employee benefits and travel expenses associated with the company are also in many cases tax deductible.

A Capital Expense

Unlike a business expense, a capital expense is not tax deductible. What is a capital expense? Basically, it is when you purchase something or make improvements for instance that will benefit your company beyond the tax year in question. Let's say you remodel your office and reroof it in the process. The new roof cannot be deducted as it provides value beyond just a calendar year. You may, however, recover some of the cost through depreciation and/or depletion. What this means is that you get to subtract some of the total cost of the project or purchase every year and thus recoup the expense over a period of time.

Categories for Business Expenses and Capital Expenses

According to IRS recommended guidelines, you should lump your business and capital expenses into the following categories:

Business Expenses

  • Factory/Warehouse overhead
  • That which goes into the cost of goods sold
  • Product/ raw material cost
  • All labor costs which includes contributions to workers' pensions plans
  • Storage

Capital Expenses

  • Assets of business
  • Startup costs
  • Any improvements

Some of the More Common Business Expenses

Yes, your industry will determine your top expenses. But there are some commonalities that link all small businesses. Such could include advertising costs, taxes, utilities. To that end, we've compiled a list of several of the more common across the board expenses with which small business owners must contend.

Cost of Your Facility

  • Mortgage/rent
  • If you have a home business: associated expenses
  • Utilities to include: electric, sewer/water, gas, waste disposal

Supplies & Materials

  • Software/hardware
  • Phones
  • Office equipment
  • Wi-Fi/internet
  • Printers
  • Computers
  • Devices for employees
  • Furnishings for office
  • Paper/ink supplies

Personnel Expenses

  • Payroll
  • Employee benefits
  • Payroll taxes
  • Wages

Marketing Costs

  • Print Ads
  • TV ads
  • Radio
  • Fliers/brochures
  • Business cards
  • Catalogs
  • SEO
  • Search engine marketing
  • Website
  • Social media
  • Banners Ads
  • Webinars

Transportation/Travel Expenses

  • Automobile mileage
  • Flight
  • Hotels
  • Board
  • Conference Costs

Taxes

  • Income tax
  • Self Employment
  • Workers Comp
  • State/local taxes
  • Unemployment tax

Regular Maintenance Expenses

  • Maintenance of the facility: plumbing, landscaping, etc…
  • Snow removal
  • Painting

Necessary Insurances

  • Property
  • Liability
  • Disability
  • Malpractice

Any Professional Fees

  • Memberships
  • Associations

Managing Your Business Expenses

As a general rule, you want to try and avoid paying for business expenses with cash. Paying via check or credit helps you to maintain a paper trail and therefore keep a better record of your expenses. In fact, paying with credit can actually help boost your business's credit score—which if you're a fairly new company could be a very good thing. Especially if you need records for tax purposes in the event of write-offs, then having this paper trail facilitates the entire process come tax season.

Be Sure to Separate Out the Personal

For sole proprietors, this can sometimes get a bit tricky. You want to absolutely ensure that you are separating your business expenses from the personal ones. To this end, you want to establish a business checking account which helps to draw that line between the two types of expenses you're managing. Not to mention, it gives your company a number of benefits, such as enabling you to accept credit card payments.

Make Payments Automatic

When you own a business there are a lot of moving parts, and sometimes things simply slip our minds. Automating your business expense payments can help ensure that they do in fact get paid and you do not consequently fall behind. Do make sure however that you know at all times what the status of your company checking account is. You don't want to overdraw on your account.

Perhaps Look Too Small Business Financing

There will be times, with any business, when capital is low, cash flow is just not there, and you are finding yourself struggling to stay on top of even daily expenses. This is where perhaps a small business loan or line of credit could help get you through the slower times. Certainly, you don't want to fall behind and thus start accumulating debt—as most know, this can have a devastating snowball effect especially for newer smaller businesses. Used responsibly, a small business loan could ultimately keep the company afloat.

The key is to know your costs. Make your own list, input your own numbers and see where you stand. Are there areas in which you might be able to trim? Where do you see the various expenses going in the future and are you prepared? Finding ways to save is critical—this helps boost cash flow and increases your working capital. It is important not to fall so far behind, that you cannot dig your way out—so think creatively.

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