Expenses are one of the most puzzling aspects of running a successful business. Tracking business expenses, identifying hidden costs, and optimizing spending are key to improving profitability.
Business expenses follow the classic chicken-and-egg dilemma: You need to invest money to grow your business, but you also need funds to spend! This is why it’s crucial to track, categorize, and prioritize every expense in your business.
Understanding Business Expenses categories:
1. Variable Expenses (Direct Costs)
Variable expenses are directly tied to your products or services and fluctuate based on sales volume. These costs are incurred only when you make a sale, which means these costs are calculated per unit of offering.
Examples:
Raw materials
Sales commissions
Marketing and advertising costs (e.g., Facebook ads)
Delivery and logistics
Commuting for client meetings
2. Fixed Expenses (Overhead Costs)
Fixed expenses remain constant, regardless of how much revenue you generate. These costs are essential to keep your business running smoothly.
Examples:
Rent or mortgage payments
Utilities (electricity, broadband, phone bills)
Memberships and subscriptions
Salaries of administrative staff
Business insurance
Professional services (accounting, legal, etc.)
Case Study: A Coaching Business
Let’s say you run a coaching business. Your fixed expenses may include rent, professional memberships, software subscriptions, and broadband. However, variable expenses like commuting costs and advertising spend depend on the number of clients you acquire.
For example, if you land two clients via Facebook ads, the ad spend becomes a direct variable expense. Similarly, your travel expenses for in-person coaching sessions also fall into this category.
How to Optimize Business Expenses for Higher Profits
Once you’ve categorized your expenses, it’s time to assess them:
✅ Identify essential expenses
🚫 Eliminate or reduce unnecessary costs
💡 Find cost-effective alternatives
By taking control of your expenses, you can improve cash flow and profitability, setting your business up for long-term success.
Got more questions?
What category would asset purchases fall into?
How do you track your business expenses on a regular basis?
How to reduce business expenses?
We will be uncovering this and more in our workshops.
Join one of our upcoming Master your Money workshops or webinars to gain hands-on insights.
Written by,
Mrudula Muralidharan
Founder & Finance Coach,
Million Goals
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