Skip to content

A brief guide to business expense management

Balancing the books, building savings, and investing for the future are all essential for a strong business foundation.

The key to making space for investing is managing. It allows funds to be set aside without impacting the core operation of the company. But simply cutting spending to the bone is likely to be counterproductive, so here’s how to approach managing small business expenses most efficiently.

The two kinds of expenses

Business expenses are split into two main types: essential and discretionary. How to go about reducing a particular cost depends mainly on its category.

Essential expenses

Essential expenses are the bills you pay to keep your business running, and which can’t be deferred or eliminated without severe consequences. This includes:

  • Premises costs such as rent, insurance, utilities, security, and so on
  • Tax payments
  • Essential equipment leasing or purchase
  • Staff costs such as payroll and benefits
  • Professional fees such as accountancy, legal advice, and banking
  • Debt servicing

Non-payment of essential expenses isn’t an option, but that doesn’t mean the costs can’t be rationalized. For example, equipment leases could be converted into ownership through low-cost finance, reducing the monthly payments. Banking and insurance services can be examined for potential savings, or expensive debt moved to a lower-cost line of credit, and so on.

Discretionary expenses

Any other expenses which aren’t legally or practically essential for running your business come under the discretionary category. This includes:

  • Non-essential subscription services
  • Travel, dining, and entertainment
  • Non-urgent upgrades to equipment or furnishings
  • Staff bonuses and perks not written into contract
  • All of these costs should be carefully monitored and streamlined where possible. Before authorizing any discretionary expenditure, ask yourself what the business case is. Does it add to the bottom line, even if only indirectly? If not, then it’s likely an expense that could be cut.

Investment and development expenses

Investment expenses can be in either of the two main categories. Usually, some level of investment in core products or services is essential to maintain standards and competitiveness. A business that doesn’t have forward momentum will inevitably start to go backwards as more proactive competitors push ahead.

However, many investments are expenses that can be deferred temporarily if trading conditions require, and are therefore classed as discretionary.

For example, investing in upgraded office furnishings and facilities may improve staff morale, and so provide an indirect boost to business. This effect should be taken into account, but in most cases, the investment isn’t immediately unavoidable and can be delayed until there’s plenty of scope in the cash flow to allow it.

It’s natural for small business owners to focus on generating growth and increasing revenue, but both sides of the profit equation are equally important. Get your expenses under control and the effect on your bottom line will be just as welcome as any rise in revenue.

Let's build the right plan, together

Looking for advice on personal money management, or need an extra set of eyes to evaluate the state of your business? We'll partner with you and create a plan to help you set and achieve your goals. Book a virtual appointment with one of our advisors today.

Book an appointment

Most popular in Small Business Centre

Small Business Centre

Ultimate Guide | How to manage your business’s cash flow.

As a small business owner, you’re managing cash coming in and out of your business everyday. From the smallest transaction to your monthly storefront rent payment, you need to have…

Cash management for small business
Small Business Centre

Let’s give credit to small business

Do you give credit the credit it deserves? If you’re planning to start your own business, or even grow your existing one, credit can be instrumental to your success. And…

Small Business Centre

What $200 can do for your business

Being your own boss has its perks. Flexibility, making important business decisions, even getting to work from home in your pajamas. But being your own boss also comes at a…

What $200 can do for your business