Are you starting your own business? Don’t overlook these common monthly or occasional expenses and include them in your budget and tax planning.
When starting their own business, novice entrepreneurs focus on expenses, which is normal. Yet, the only problem is that most of them only focus on the costs of starting a business and tend to overlook the future expenses of running a business.
As an entrepreneur, you can’t escape expenses. They are an integral part of your business. To produce, attract customers, sell, and so on, you need to invest money in your business.
Now, these expenses can vary by business, an amount at least. Yet, no matter the industry or how big or small your company is, you’ll also have to pay for the typical business expenses like payroll or equipment.
Let’s see why business budget planning is so important and what expenses novice entrepreneurs should expect.
Why is budgeting so important?
A well-thought-out budget is essential to have both when it comes to your personal finances and business finances.
Yet, while not properly budgeting your personal money only affects you, things get a lot more complicated when it comes to business money. As an entrepreneur, if you fail to properly manage your business’s finances, a lot more people will suffer, such as your staff, your supplier, and, obviously you.
Now, when running a business, it’s easy to get distracted by day-to-day problems and miss the bigger picture, which is figuring out the money and having positive results at the end of the month. But that can only happen if you allocate time to create and manage budgets, as well as to prepare and review business plans and regularly monitor your business’s financial situation and performance.
What exactly does business budget planning mean?
Budgeting is all about taking control over your business’s finances, including its incomes, expenses, and profits. It is also about making sure that your business can fund its current commitments as well as meet its objectives by making bold yet confident financial decisions. Budgeting is also about making sure that your company has enough funds for future projects.
But why should entrepreneurs take business budgeting so seriously? There are plenty of benefits of budgeting when you are running a business, including:
- Budgeting helps estimate revenue and prioritize spending.
- It helps restrict any expenditure that is not part of the plan or would affect the financial stability of the company.
- Budgeting helps businesses set accurate financial goals.
- It also helps monitor the business’s financial performance.
The types of business expenses
Now, before we move forward to what expenses novice entrepreneurs like you should expect, learn that there are three different types of business expenses: fixed, variable, and periodic. Let’s see what the difference between these types is.
Fixed business expenses
Fixed expenses refer to those costs that do not change or only change slightly. For example, the monthly rent a business pays on its headquarters does not change. These monthly payments are made under a renting contract, which prevents the amount that needs to be paid from increasing without the consent of the business owner.
Variable business expenses
Variable business expenses are those costs that can vary from month to month. The variable costs are typically the largest expenses a company makes. For example, a variable expense can be the payroll for a company with many freelance employees or overtime expenditures.
Say, for example, that during one month, your business experiences a surge in demand, which forces you to ask your employees to work overtime or to hire some freelance staff for extra help. In that case, the amount you pay for payroll in that month can be higher than what you paid the previous month.
Periodic business expenses
Periodic expenses are those that only happen, well, periodically. These types of costs are really difficult to plan for because they usually appear when you expect them the least. For example, you may have to pay for an unexpected equipment replacement or repair.
5 costs of running a business
Here are the five most common costs of running a business you should expect to pay for:
1. Payroll and benefits
A business is nothing without its employees. Yet, an in-house team implies monthly expenses like salaries, personal and medical leave, health insurance, and other benefits costs. Besides that, you need to consider training costs and office supplies.
2. Office space and utilities
The space where your business is located is likely rented, so you have to pay a monthly rent, plus the utilities. Even if you don’t rent the space, the utility costs still remain a monthly expense your business makes.
3. Equipment maintenance and upgrades
In order for your team to do its job, they need the right tools and equipment. Whether your business’s nature is working in an office and you need to pay for computers, supplies, software, and stuff like this, or other industry that involves fieldwork, there will always be the costs of purchasing, maintaining, and upgrading the tools and equipment when needed.
4. Insurance
Insurance policies will be some of the most essential checks your business will write every month. At a minimum, you’ll need business insurance, public liability coverage, and month to month auto insurance for your business car. Your business should also consider insurance for negligence and property.
5. Professional services
Besides your in-house team, your business likely collaborates with third parties such as legal and accounting services. These two are both critical for your business to keep its financial and legal situation in order. Accounting services help keep payment and inventory records in order, while legal professionals can help you with documents and other legal issues. Yet, such professional services could cost you up to a few thousands of dollars every year.
