Are you intending to own a small business? If yes, then you should be well aware of the monthly expenses involved in its operations.
Overview:
Business big or small one should know the different expenses incurred in the activities of the business. Many businesses fail due to lack of knowledge or initiative to know the major expenses involved in the business. Many business owners concentrate on the main product and the promotion of the same, but fail to see secondary expenses which have a very big impact on the business if not aware of.
The success of any business depends upon the ability to track and monitor income and expenses. Each and every expense big or small needs to be accounted for and controlled to get maximum profit. Majority business fails due to poor cash flow management. It is vital to be aware of all the expenses and the dues to prevent major financial setbacks.
For new and inexperienced business owners managing the expenses can be quite challenging. Every Business Ideas has its own way of accounting methods for the expenses.
Following Common Business Expenses Will Give a Fair Idea of the Things
- Project and Incorporation expenses
All businesses are started with an idea and then brought down to the drawing table. A lot off expenses are involved in chalking out the project and finalising the business. Even though it is a one time expense, there may be instances where expenses need to be made on expansion projects. These expenses when not included in books of account will show excesses of cash in books but less in physical mode.
- Registration, permits and licenses
Many entrepreneurs consider the fees paid to the different registrations, permits or licenses paid, but in actual the expenses incurred will be much more like consultation fee paid to the agent or any other small expenses like photocopy expenses, and application form fee in getting the same are often overlooked. Some permits and licenses would require renewal, the expenses for the same need to account in this head. It helps in planning the expense and fund to pay for the same in advance. You keep a provision in your budget by saving thus not creating a burden on capital by one time withdrawal of funds.
- Cost of premises
Nature determines the premises to operate from. It may require a factory shed, workshop, office, and floor space for a shop or just a cabin. Whatever may be the kind of premises there is a cost involved to enjoy or utilise the same. It is on monthly rental, yearly lease or own premises. Different expenses like rental, lease amount or mortgage amount as to be paid. Having the expense head will be able to keep provisions for the same and have an account of the same.
- Duties and taxes
Any legal business holding will come under the preview of taxes and duties of the country. It is important to know the different taxes and duties to be paid by the laws of the country. There are many tax forms and duties to be accounted for like, custom duty, excise duty, sales tax, value added tax, goods and service tax, octroi and many more. It is vital to maintain these expenses to know when and how much amount has to be paid. This helps the organisation plan well in advance and budget the expenses to avoid oversight and penalties due to delay.
- Utilities
Utilities expenses and cost has a direct and immense effect on the business on a day to day basis. This account head is used to maintain the expenses incurred for electricity, water, common area, and telephone and internet service charges. Each of the expenses comes under monthly pay out and if not monitored for misuse and wastage it can lead to a loss for the organisation.
- Machineries and equipment
Machinery and equipment is the major part of the expenses. It depends on the nature of business carried. It is important to list out all the machinery and other equipment to determine the cost and investments.
- Furniture and Fixture
This expenses head is to be maintained to account cost incurred in installation of various furniture and fitting needed for the business. It will include lightings, fans, showcases, storage cabinets, air conditioners, tables and seating, partitions and display etc.,
- Inventory
This is a very important expenses account to be maintained. Some businesses hold raw materials used for a product as inventory, some term inventories as stock of finished products. Either way it is vital to know how much inventory in terms of money is in hand at a particular given time. It will help in avoiding over purchase of materials and incurring losses due to stagnation of goods.
- Salary and wages
This account is maintained to record all the salaries and wages paid to the employees and laborers in the organisation. It is one of the major factors determining the cost of operating a particular business. It has a direct impact on the final cost of a product or services.
- Building maintenance
This account has to be followed to account all expenses incurred in the maintenance of the business premises. It will include all costs involved in the general maintenance of the premises like repair works, construction of extensions, improvements to the building and interiors.
- Printing and stationary
This account is maintained to record the cost of stationery and other office usable exhaustive materials required for the smooth functioning of the business.
- Health and welfare
This accounts shows costs incurred in providing health facilities and investing on various welfare schemes as per the law to the staff and labourers of the organisation.
- Insurance
Every business has its own risk in today’s world. Insuring the assets and liabilities of the company against unseen accidents or losses is a smart move to curtail the extent of losses. The expense head determines on the cost of insurance the organisation and the payment schedule to maintain.
- Transportation and logistics
It is maintained to account all costs incurred for transporting and getting logistic support for the products and services of the organisation.
- Purchase
It is necessary to record the cost and details of raw materials purchased to make products and services of the organisation.
- Sales
It is the books of account to maintain the sales records and expenses incurred toward the said sales.
- Consultation and service
This is used to enter the cost incurred as consultation fees and auditor advice and services fees.
- Miscellaneous expenses
It consists of expenses which are not incurred regularly and is often maintained to provide provision for unseen expenses which may or may not occur.
Few More List of Expenses Maintained by Some Business Are
- Marketing and Advertising expenses
- Entertainment expenses
- Travelling expenses
- Conveyance expenses
- Association expenses
- Social and society responsibility expenses
Conclusion
Businesses fail due to bad accounting practices. The failure to track, monitor, control and document expenses is the major factor. A business expenses list can enable you to prepare for all expenses and protect your business from cash flow challenges. Business owners employ experienced personnel to keep track of the expenses list in the form of accountants. They also seek advice from various platforms like Vakilsearch to help them in maintaining a good record of expenses.
FAQs
What are the expenses of a small business?
Small business costs fluctuate depending on the industry, size, and operational requirements. Typical expenditures encompass rent, utilities, employee salaries, insurance, marketing, and supplies. It is crucial for small business proprietors to meticulously monitor and allocate budgets for these expenditures, fostering financial stability and facilitating growth.
What are the 4 types of expenses?
The four primary categories of expenditures comprise:
- Fixed expenses
- Variable expenses
- Operating expenses
- Non-operating expenses
How do you calculate monthly business expenses?
Aggregate your company's expenditures, encompassing office supplies, operating expenses, payroll costs, and business loan payments. Utilize the formula: Net Income = Revenue – Expenses. It is imperative that your expenses align with HMRC's 'wholly and exclusively' rule, necessitating diligent scrutiny to ensure each payment adheres to the criteria.
How can I save on a small income?
For those with a modest income aspiring to save money, consider adopting these money-saving strategies to kickstart your savings journey:
- Establish a budget.
- Implement the envelope budgeting system.
- Trim down all non-essential expenditures.
- Monitor your spending patterns.
- Terminate unused subscriptions.
- Expedite debt reduction.
- Cease paying late fees.
How do you budget for beginners?
Initiate the budgeting process by following these steps:
Outline your values: Identify and prioritize what holds significance for you.
Establish goals.
- Assess your income.
- Evaluate your expenses.
- Formulate your budget.
- Prioritize saving: Allocate funds for personal savings before other expenditures.
- Exercise caution with credit cards.
- Regularly review and reassess your budget.
How do I start a budget with no money in India?
- Diversify your funds across different banks.
- Allocate a portion of your salary to savings before spending.
- Regularly invest a small amount in high-quality stocks and adopt a long-term perspective.
- Ensure that your EMIs do not surpass 30% of your income to avoid falling into a debt trap.
How do you create a financial plan?
Financial planning involves the following steps:
- Establish financial goals.
- Monitor your finances.
- Create an emergency budget.
- Address high-interest debt.
- Strategize for retirement.
- Enhance financial efficiency through tax planning.
- Invest to achieve future objectives.
- Cultivate your financial well-being.
How can I grow my life financially with Small Business?
- Establish life goals.
- Develop a monthly budget.
- Clear credit card balances entirely.
- Initiate automatic savings.
- Commence investing promptly.
- Monitor your credit score.
- Negotiate for goods and services.
- Educate yourself on financial matters.
