The COVID pandemic may have disrupted the economy, but American entrepreneurs are opening businesses at more than twice the pre-pandemic rate. More Americans are choosing to become small business owners to chase opportunities and improve their lives. But, there is a lot of detail that goes into opening and running a successful business. If you don’t properly keep track of those expenses, your business could end up failing. So what are the different types of business expenses? Read on to learn about the costs your business faces and why you should track them carefully.
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What Are Business Expenses?
Business expenses are the costs your business incurs to operate. As a small business owner, it is vital to keep track of all your expenses to know what your business needs to earn a profit. Some examples include:
- Advertising and marketing
- Maintenance expenses
- Supplies and equipment
- Employee compensation
- License and permit fees
- Startup fees
- Travel and meals
The Three Main Types of Business Expenses
Depending on your type of business, you will encounter a variety of expenses you will have to pay to keep your business open. Categorizing these expenses can help you better manage your costs. They can fall into one of the following three categories.
Fixed costs are expenses that stay the same every time you pay them. Rent for your building is an excellent example since you pay the same amount each month of your lease.
Variable costs are costs that change each payment period. Payroll and utilities fall into this category as they can vary widely from month to month.
Periodic costs are expenses that occur occasionally and at irregular intervals. Maintenance or repair costs fall into this category since they can occur unexpectedly.
How to Manage?
As a business, you need to accurately track each of your expenses using a business expense tracking software to budget and find areas for growth. Keeping good records by categorizing and itemizing these expenses will help you improve your spending and stick to your budget. If your business is growing and needs more guidance for budgeting its expenses, CFO services can give you an accurate picture of your expenses and create a plan to optimize your cash flow.
Are These Expenses Deductible?
The IRS allows business deductions on your taxes to reduce your tax liability if those expenses are ordinary and necessary in your business industry. Depending on the expense, they can be fully deductible or partially deductible. Deductions make it even more critical to keep an accurate record of expenses required for you business.
Take Control of Your Business Expenses
Your business faces many types of expenses that you must track to have an accurate budget. Categorizing expenses into fixed, variable, and periodic can help you better understand the costs facing your business each month. You can use this information to find areas to grow your business and help with your taxes.
Do you want more tips to keep your business’s finances in order? Stay tuned to our website.