According to the IRS, there are two types of business expenses: business and capital. A business expense is an ordinary and necessary expense without which you cannot run your business. They include things such as rent, insurance, and state taxes. A capital expense is a purchase that will benefit your company beyond just a calendar year.
The good thing about business expenses is that the bulk of them can be written off come tax time. On the other hand, capital expenses are not tax-deductible.
Capital Expenses
Major capital expenses include business assets, startup costs, and improvements.
Business Expenses
Business expenses include factory or warehouse overhead, product or raw material cost, labor, or storage.
Your industry will determine your top expenses, but some commonalities link all small businesses. Here is a list of more common expenses small business owners must comply with:
Facility Costs
This includes a business mortgage or rent of a facility. If you run your business from home, this will consist of associated costs you’ll spend to maintain your company.
Utilities
Every facility will also charge utilities like electric, sewer, water, gas, and water disposal.
Supplies and Materials
Of course, this will vary from business to business but it costs money to make money. Some of the basic office equipment you’ll need include phones, printers, computers, wifi or internet, office furniture, and necessary software or hardware.
Personnel Expenses
If you have employees, you’ll definitely have to set aside funds for payroll, employees benefits, payroll taxes, wages, and so on.
Marketing Costs
Advertising can also cost a pretty penny but for some businesses, it is ultimately worth it in generating leads and new customers to their storefront. Some marketing endeavors can cost nothing such as making social media accounts – but if you want to print flyers, have television or radio advertisements, websites, and business cards, you’ll need to spend money to promote your company for business.
Travel Expenses
Some businesses also need to travel to meet with potential leads, current clients, and so on. Traveling isn’t cheap nor is it free for business owners. You’ll have to track things like automobile mileage, hotels, conference costs, and flights.
Taxes
Uncle Sam will always require his cut in helping your business flourish in this free-market economy. As a business owner, you are responsible for items like income tax, self-employment, workers’ compensation, state or local taxes, and unemployment taxes.
Regular Maintenance
Maintaining your facility is a necessary expense to show your business is clean, up-to-date, and ready to service customers. Maintain costs include things like plumbing, landscaping, snow removal, painting, etc.
Necessary Insurance
There are several different insurance policies business owners will need to protect themselves from any unexpected events in the workplace. Insurance considered necessary include property, liability, disability, and malpractice insurance.
And any Professional fees
If you’re apart of any associations or memberships within your industry, you’ll need to pay upfront or monthly fees to remain part of that community. While some business don’t find it necessary to join a community, some find it beneficial to get new leads.
How do you manage it all?
Establish a business checking account. This helps separate the two types of expenses you’re managing. It also gives your company several benefits, such as enabling you to accept credit card payments.
Make your payments automatic. When running a business, it’s easy for things to slip our minds. Automating your business expense payments help ensure that they get paid and that you don’t fall behind. Make sure to know the status of your company checking out so you do not overdraw funds.
Know your costs and find ways to save. Finding savings is critical to boosting cash flow and increasing your working capital. Make a list of your expenses and see where you stand. Are there areas you might be able to trim?
Look into small business financing. If you’re in a period of low cash flow, a small business loan or a line of credit can get you through the slower times. A smaller business loan could ultimately keep your company afloat if used responsibly.
First Union Lending is Ready to Help You With Your Expenses
First Union Lending offers numerous financing programs designed with small businesses in mind. Our business loans are fast and flexible, with financing options ranging from $5,000 to $2 million.
We have the funds to help!
Call today to learn more about our various financing solutions to help your business grow and succeed.