The Essential Business Expenses List: Common Monthly Expenses to Expect
The ability to track and monitor income while controlling expenses is vital for the success of any organization. To prevent cash flow challenges, it is important to be aware of all your expenses and when they are due.
For startups and inexperienced entrepreneurs, managing expenses can be challenging. The following is a business expenses list that details the common monthly expenses for businesses.
Permits and Licensing
Before opening your new business, you need to have all the necessary permits. For starters, you will require a license from the federal and local government.
In some industries, you may need more than three permits. It is therefore essential to do thorough research of the requirements of opening such a business.
These permits are usually renewed on an annual basis. To avoid the burden of withdrawing a lump sum from your operating capital to pay for licenses, have a separate kitty for making small savings for such expenses.
Depending on the nature of your business, you may require an office, workshop, warehouse or floor space to open shop. Whichever the type of workspace you need, it will come at a cost.
The following are some of the types of premises costs you may have to pay:
This option exists where you have ownership of the building you are operating from but still paying a mortgage for it. Because the building is a depreciated asset, the purchase cost is spread over time.
Home business expense
Even if you set up shop at home, you may still have to bear some costs. For example, you may have to do renovations such as partitioning to create a proper workspace for your business.
You can secure an operating space through leasing. A lease agreement entitles you to use a property for a specified period of time in exchange for regular payments.
Premises costs usually accrue monthly. It is important to ensure that you pay before the due date to avoid penalties.
To operate a business legally in the US, you may have to pay one or more of four basic types of taxes to the Internal Revenue Service (IRS).
All businesses except partnerships are required to file income tax annually. If a company uses the withholding system of paying taxes, it pays its taxes as it generates revenue.
For businesses that pay estimated taxes, they are required to pay taxes as they file federal income tax returns. In some states, income tax is paid depending on the company’s legal structure.
Business owners are required to pay a self-employment tax which contributes to their Medicare and social security.
Self-employment tax is 15.3% with 12.4% going to social security. This tax offers the payee retirement benefits and disability and hospital insurance covers.
Any business that has employees is subject to the employment tax.
This tax covers their social security, Medicare, federal income tax withholding and federal unemployment tax (FUTA) for its employees. As the employer, you are expected to cover all the costs of FUTA.
However, you will only be required to pay half of the social security and Medicare tax. The other half is deducted from the employee’s salary.
Some businesses are required to pay excise taxes to the federal government.
This depends on what a company sells or manufactures, the type of equipment and products used, and whether there are payments received for certain types of services.
Business by nature involves some element of risk. Depending on the type of business you operate, you may have to take up one or more of various types of insurance.
Home based or not, every business should have general liability insurance. Such a policy will protect you in the event you, your employees or your products cause physical damage to someone or property.
Property insurance is also essential to safeguard the premises (if you own your building) and other property including computers, office equipment, and inventory.
This policy will insulate you from losses in the event there is a fire, theft or vandalism.
Another policy to consider is a business interruption policy. This will compensate you when your business is unable to operate as a result of issues beyond your control.
Salaries and Wages
Your business will have to pay wages every month to employees. If you have a big team, you can consider hiring payroll companies to help with the complexities of compensating staff. This will come at an additional cost.
Supplies and Office Expenses
The supplies that enable business operations to take place smoothly have to be replenished periodically. Preferably it should be every month. It is essential to keep track of the usage of these supplies to prevent interruptions or last-minute ordering.
Marketing and Advertising
Any business needs to create brand awareness and must promote its products. This means that your company must have a marketing strategy.
The costs of advertising especially on radio, TV, and newspaper can be quite steep.
If you are a new business, you might want to start with more affordable channels such as digital advertising. Either way, you will have to bear costs associated with marketing.
This is probably the most foreseeable business expense.
Unfortunately, utility bills can accrue quite fast and can be overwhelming if not closely monitored. Monthly utilities include electricity, gas, water, sewage, trash pickup, phone lines, and internet bills.
General Maintenance Costs
Some services may be easily ignored but could be significant. For example, the facility will need to be mowed or have snow removed from time to time. Also, equipment and machinery may require regular servicing.
Records of payments for outside services should be well kept. For any service provider you spend more than $600 on in a year, make sure you provide them with a 1099-MISC form. You should also file the form with the IRS.
At times businesses have to outsource professional services.
Depending on the nature of the service your company requires, the expert may be sourced for long or short term contracts. The most common professional services businesses need may include:
- IT consulting
- Legal advice
Consultants may demand monthly fees especially if contracted for a long duration.
Business Association Fees
In some industries, your company may need to be affiliated or recognized as a member of a professional association. This will come at a cost which is usually annual.
Credit Card Fees
If your business accepts credit card payments, you should know that there is a vendor charge you will pay. Depending on the credit card used, the cost is usually 3% of the total charges. To reduce the effect of such fees you can:
- Pass the value in whole or in part to the customer
- Offer discounts for cash payments
It is also advisable to avoid credit card debt as the interest rates are usually quite high.
Travel Expenses, Meals, and Entertainment
These are some of the expenses that are hard to keep track of. It is important to keep good records of each trip noting its purpose. Enter the details immediately after traveling before the information becomes hazy.
When self-driving to meetings and other business-related events, be sure to record the mileage accurately. There are smartphone apps that make it easy to keep track of business miles.
During long distance and overnight trips, be sure to keep a record of the air ticket costs, car rental, accommodation and other expenses you incur during the trip.
Do Not Forget to Factor in Miscellaneous Expenses to Your Business Expenses List
Being in control of every aspect of the business is impossible.
There may also arise some unforeseeable expenses. It is therefore essential to factor in an amount every month to handle such costs.
This money will come in handy when there is a deficit. For instance, you may use it to settle expenses when payments from clients have delayed. Also, having such a fund may be useful when there is an emergency.
Many startups do not make it to the five-year mark.
Most of these businesses fail because of bad accounting practices. Key among them is the failure to track and document expenses.
Having a business expenses list can enable you to prepare for all expenses and protect your business from cash flow challenges.