Business expenses are those basic expenses that happen while you operate your business. They are applicable to small institutions or large corporations. Business expenses are a part of the Profit and loss statement. In the P&L statement, you arrive at a company’s net income after the subtraction of business expenses from business revenue. Businesses need to track and categorize their expenditures as some expenses may count as tax deductions, resulting in significant cost savings for example Donations.
Here are some business expense examples that may be partially tax deductible or fully tax deductible:
Bank fees & interest
Commissions and Fees
Employee retirement plans
Employee education scheme
Employee benefit program
Maintenance and repair
If you run a small business from your home, then you can cut down on partial expenses such as:
Home office space
Maintenance, repairs or maintenance
Business Phone line (separate from home line)
# 12 Types Of Business Expenses
The purpose of each organization is to ensure that expenses are less than sales so that the company will gain net profit. To operate a business you have to spend money on various activities, which is known as business expenses. Most businesses have the following business expense types-
1. Wages & salaries paid to workers and employees:- A large amount is spent to pay employees according to the payroll system. This includes all wages paid to the permanent & temporary/ contract based employees. Apart from monthly salary, other benefits such as bonuses are also to be given to the employees to keep them motivated. It covers a large part of business expenses. It is advisable to set up a payroll system in advance to avoid later complications.
2. Location Cost:- Location costs are types of business expenses that are usually further classified into three types as mentioned below-
Rental cost: Almost all businesses need a place to operate and always require to pay cost against it. The rent paid for office space is one of those expenses which makes up a large proportion of monthly/ annual expenses. It should not be forgotten while preparing the monthly/ annual budget. It also includes the cost of a special venue for some special event. The advantage of getting space on rent is that if the business is facing major losses then it can be vacated. While the disadvantage is that the rent keeps increasing with every financial year.
Mortgage Cost: It is a type of business expense which is a loan that a company acquires from authorized banks to buy a piece of land for office or factory location. The cost of a mortgage in an office building is also to be included in annual expenses. The advantage of a mortgage is that you will get instant money. However, interest rates are quite high which is a disadvantage, as you will end up paying more.
- Leasing cost: Sometimes some people lease/hire a location from the owner to set up their business. The space can be leased for any period of time such as 5 years. You can set up your business by renting the property for a fixed period of time. The advantage of leasing the property is that the rental cost will remain the same for the entire duration, while the disadvantage is that you cannot leave the place before the end of the fixed time period.
3. Accounting & Banks expenses:- Accounts and banks are types of business expenses that are an essential part of every business. It is important to maintain a record of every day’s expenses & profits. Handling accounts is a complex task that requires a large team.
In addition to a manual workforce, the company is required to purchase accounting software which is also an expense in this category. Sometimes companies hire an IT expert to create customized software to suit their needs. A chartered accountant is also employed to balance the quarterly/half yearly and annual account sheets to maintain the transparency in the transactions. However, only big firms hire a chartered accountant and pay them monthly. Otherwise, small firms only employ chartered accountants once a year, to tally their accounts.
4. Education & training expenses:- This type of business expenditure incurs substantial expenses on an organization which is the expense of educating and training its employees. Technology is changing rapidly and with the emergence of new technology, methods of working are also changing.
Therefore, a company is required to spend a handsome amount to provide training courses to employees. Some companies have their own training department, which incurs additional expenses and the company has to pay monthly salary to the trainers.
Otherwise, companies send their employees to external institutions to take some specialized training courses which is also a big expense. Many times companies also require demonstration materials to train candidates, which are again classified under education and training expenses.
5. Office expenses:- Office expenses are a type of expenses which are required to run an office such as internet service, website, domain name charges, software hired, hardware costs, cloud storage services like cloud, BOX, OnDrive etc. mobile phone and laptop expenses Can also do Involvement in office expenses. Salaries, sweepers, electricity bills etc. and office boys are also a part of office expenses.
6. Office supplies:- Office supplies are tangible traditional office items that are needed to run an office such as paper clips, paper, pens, pencils, staplers, CDs, USB drives, printer ink cartridges. These supplies are consumed quickly and need to be replenished every month. In addition to traditional office supplies, there are office cleaning and janitorial supplies, office furniture, and their maintenance supplies, etc. There is no getting around it. A separate budget needs to be maintained for these types of expenses.
7. Business Insurance Expenses:- There is a risk from the very first day of starting the business. A single misbehavior or lawsuit can ruin the business. It is advisable to buy insurance before making any profit from the business. Various types of insurance such as property, cause, liability, workers compensation, auto insurance are covered to cover future catastrophic events like fire, earthquake etc. At first, these insurances may incur additional expenses, but they will act as a savior during this period of emergency situation.
8. Advertising and Marketing expenses:- Advertising and marketing types of business expenses are one of the biggest expenses incurred by any organization. In the current cut-throat competition environment, it is very important to advertise and market the product correctly. So that people can get acquainted with the products and services provided by the company. There are different platforms for advertising of products and services such as television media, social media, newspapers, handouts, digital marketing etc.
9. Delivery & freight expenses:- Delivery and freight expenses are unavoidable expenses in any business. Delivery from suppliers requires a lot of supply which causes delivery and freight expenses. In addition, courier & postage charges are also incurred for sending documents & files from one branch of the business to another. Therefore, it would be sensible to keep a small budget for such business expenses.
10. Cost of goods sold:- It always costs a small amount for each unit sold. These types of expenses are a bonus paid for each unit sold to the employee, as well as expenses incurred such as storage expenses, packaging expenses and distribution expenses (eg, fuel, traffic charges, etc.). This is called the cost of goods sold. Usually, each company tries to price its product in such a way that it takes care of these expenses and makes a good profit.
11. Utility expenses:- Utility expenses are expenses incurred on electricity, water supply, heat, gas, and sewer. These all types of expenses are fixed amounts with a variable amount based on the use of a mixed amount.
12. Gifts, meals, and entertainment expenses:- These types of expenses are additional expenses that a company spends to keep its employees happy and motivated. Typically, a company provides a meal time to its employees which incurs additional expenditure on the organization.
Other than that, companies give gifts to their employees on various festivals and their birthdays, which is not directly beneficial to the company, but this gesture strengthens the relationship of employer & employee and also increases employee loyalty to the company. Annual parties such as New Year’s party or Diwali party are some of the entertainment expenses.
# How to Keep Easy Track Of Your Business Expenses In Vyapar?
Tracking business expenses is much less painful if you have the right tools like Vyapar accounting software. These tools will help make tracking business expenses in a daily habit. This will help you keep a close eye on how much you are spending as a small business owner. Apart from that better understanding of your expenses will rise in profitability. Tracking your business expenses also makes tax filing time easier because many expenses can be claimed as write-offs. If you track your expenses regularly then you are likely to get a potential deduction. This means that you will pay less (or get more back) on tax time.
Where to find “Expense Report” & how to use it in the Vyapar App?
Go to Reports > Expense Report.
In expense reports you have 3 types of reports:
1. Expense Transaction Report (Here you can have a customized view on all expense transactions)
2. Expense Categories Report (Here you can have a customized view on categories wise expenses)
3. Expense Item Report (Here you can have a customized view on individual item expenses)
# 7 Ways To Reduce Business Costs
As a business owner, you can’t stop searching for new ways to reduce the cost of the business and get more profit. Otherwise, your business will never succeed. By implementing these Seven simple strategies within a year, you will be able to save thousands of rupees and gain net profit.
1. Start internship program:- Alternatively, you can post an advert online at sites like Urban Interns and check out all the rising stars eager to work with you for a shining resume credential and real hands-on experience. Moreover, there are high chances of discovering true talents to hire.
2. Go paperless:- This is the Stone Age in which online payment and invoicing systems are available at a low cost. Using online payment methods and sharing documents online keeps you away from few stationary expenses and your business moving one step forward towards digital India.
3. Don’t be shy to ask for a discount:- Take the nerve and ask the retailers directly if they can give you a discount as a small business owner.
4. Use the power of co-opetition:- Team up with fellow business owners to work together and share expenses on purchasing new supplies in bulk. In addition, you can further and jointly promote pavement sales, share mailing lists and distribution channels with businesses offering complementary goods or services that may interest your customers. In addition, you can exchange advertising places on your websites.
5. Cut down on paid software:- Nowadays tech is an open-source free alternative to almost any product in the market. As long as a specific software is absolutely fragile to keep your business smooth, get rid of it.
6. Buy used equipment and furniture:- Shopping and bargaining in thrift shops is no longer embarrassing. It is trendy. Loads of businesses prefer to furnish their offices costing shabby vintage goods rather than luxury designer goods (which often look a lot more similar). Businesses claim to save up to 50% of their cost on purchasing used office equipment such as computers, faxes and printers only.
7. Invest in self-education:- If you still feel reluctant to pay a one-time consultant to solve the problem for you, then spend less on self-education.
# 5 Tips to Reduce Business Expenses
Maintaining tight control over both fixed & variable expenses is an essential part of maximizing cash flow and profits in your business. A variety of strategies can prepare entrepreneurs to rein in expenses and the unexpected costs that crop up during the year.
Make a plan:- We are aware about the fact that the things that happen with planning cause low costs in any business. You need to evaluate where your business is now and where you want to take it in the future.
Keep an eye on expenses:- You have to understand your historical costs before planning for the future. This requires collecting data in an effective and efficient manner.
Manage variable costs:- Look at your company’s past variable expenses and calculate what percentage of sales they represent.
Invest in technology:- Explore new technologies that can help your business improve efficiency, increase productivity, and reduce costs. As such, many companies are now using accounting software for small businesses.
- Provide incentives to employees:- Make people accountable for costs and establish appropriate rewards for employees who find ways to reduce spending. This helps to create a zero-waste culture within your organization. It also helps motivate charged staff members with implementing expense-cutting initiatives to stay on task and be creative.
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