Essential list of monthly business expenses and costs

Running a business is a multifaceted endeavor that requires careful financial management. For business owners, one of the critical aspects of maintaining a healthy cash flow and ensuring profitability is understanding and tracking monthly expenses. These costs can add up fast, so it’s essential to have a clear grasp of where your money is going and find ways to spend smarter.

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In this piece, we'll explore the different types of monthly business expenses, offering insights and practical tips to help you handle your company's finances. Whether you're a startup or an established business, this guide will help you keep track of your spending, maximize tax deductions, and make informed choices that will help your business thrive.

What are monthly business expenses?

Monthly business expenses are the recurring costs incurred by a company during its regular operations. These expenses can vary depending on the nature of the business, its size, and the industry it operates in. 

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Some of these expenses are tax-deductible. The Internal Revenue Service (IRS) determines if an expense is deductible by considering if it is ordinary and necessary. An "ordinary" expense means it’s common and accepted within the industry, while a "necessary" expense is one that helps conduct business operations and is appropriate for the trade or organization.

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Accurately tracking and managing these monthly business expenses is crucial for several reasons:

• Cash flow management: By keeping a close eye on expenses, businesses can ensure they have sufficient funds to cover their recurring costs and avoid cash flow shortages.

• Budgeting and forecasting: Accurate expense tracking allows businesses to create realistic budgets and forecast future financial needs, enabling better strategic planning and decision-making.

• Tax compliance: Many business expenses are tax-deductible, and proper expense tracking ensures that businesses can take advantage of these deductions and minimize their tax liabilities.

• Cost control: Monitoring expenses helps small business owners identify areas where costs can be reduced or optimized, leading to improved profitability and efficiency.

• ‍Performance evaluation: Tracking expenses against revenue and profit figures can provide valuable insights into a business's overall performance and profitability.

Common categories of monthly business expenses

Let's take a look at the list of monthly business expenses and explore strategies for effective expense management:

Rent or mortgage payments

For businesses operating from a physical location, rent or mortgage payments are often one of the largest monthly expenses. This includes the cost of leasing or owning an office, retail space, warehouse, or any other commercial property essential for operations. Some of these costs may be tax-deductible.

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When it comes to rent or mortgage payments, it's important to evaluate your space requirements and negotiate favorable terms carefully. Consider factors such as location, accessibility, and potential for growth when selecting a property. You can also explore options like co-working spaces or shared office arrangements to help reduce costs, especially for startups or small businesses.

Payroll and employee benefits

Salaries, wages, and employee benefits are significant monthly expenses for businesses with employees. This includes costs like payroll taxes, retirement contributions, and other benefits offered to employees. These expenses are also deductible.

Insurance premiums

Businesses require various types of business insurance coverage, such as general liability, property, professional liability, and workers' compensation insurance. These insurance premiums are typically paid monthly, quarterly, or annually. 

Office supplies and equipment

Business owners often need to maintain a stock of office supplies like paper, pens, toner, and other consumables. There may also be costs associated with leasing or purchasing home office equipment like computers, printers, and ergonomic furniture. You can deduct expenses related to this. To optimize office supply and equipment costs, it’s necessary to implement inventory management practices to avoid overstocking or unnecessary purchases.

Utilities

Utility expenses like electricity, water, gas, internet, and phone services are essential for keeping businesses running smoothly. These deductible business expenses can also fluctuate due to factors such as weather patterns, usage spikes, or rate changes by providers. 

Marketing and advertising

Promoting products or services is essential for business growth, and marketing and advertising expenses can include costs like social media advertising, search engine marketing, print ads, and promotional materials. Business travel to industry events is often a necessary expense for marketing purposes.

Professional services

Many businesses rely on professional services such as accounting, legal, consulting, or IT support. These services often come with monthly or project-based fees.

Loan repayments and interest expenses

If a business has taken out loans or lines of credit, monthly loan repayments and interest expenses will be a recurring cost.

Subscriptions and software

You may have to subscribe to various software applications, online tools, and cloud-based services, adding to your monthly expenses.

Travel and transportation

Businesses may incur costs related to business travel, such as airfare, hotels, rental cars, and transportation expenses for employees or clients. It’s best to develop a clear travel and expense policy that outlines guidelines for booking accommodations, transportation, and reimbursement procedures.

Maintenance and repairs

Keeping equipment, machinery, and facilities in good working condition often requires regular maintenance and repairs, which can be a recurring monthly expense. The IRS allows sole proprietors and business owners to deduct expenses for repairs and maintenance of their property and equipment.

Taxes and licenses

Depending on the location and type of business, there may be various taxes and license fees to be paid monthly or annually, such as sales tax, property tax, or business license fees. This usually means staying informed about the tax and licensing requirements in your jurisdiction or seeking guidance to understand potential deductions and credits that can help minimize your tax liabilities.

Professional development and training

Investing in employee training and professional development can be a valuable expense for businesses to improve productivity, skills, and knowledge. You could explore cost-effective options like online courses, industry events, or in-house training programs. 

Inventory and raw materials

For businesses that produce or sell physical products, the costs of inventory and raw materials can be a significant monthly expense. You can tackle this by implementing efficient inventory management systems to optimize stock levels and minimize waste. 

Miscellaneous expenses

There may be additional miscellaneous expenses specific to a business's operations, such as shipping costs, small equipment purchases, or other unpredictable expenses. While it's challenging to anticipate every possible expense, it's essential to maintain a contingency fund or budget for miscellaneous expenses.

How to calculate monthly business expenses

Follow these steps to calculate your monthly business expenses accurately:

1. Gather all receipts, invoices, and bills: Collect all documentation related to your business expenses for the month. This includes proof of purchase receipts, invoices from vendors or suppliers, and bills for services like utilities or rent. 

2. Categorize the expenses: Sort the expenses into relevant categories such as office supplies, advertising, travel, utilities, rent, payroll, and so on. If you have unique expense categories specific to your business, create custom categories to accommodate them.

3. Record the expenses: Enter each expense into a spreadsheet, accounting software, or a dedicated business expense tracking app, along with the date, amount, and category.

4. Separate fixed and variable expenses: Identify which expenses are fixed (e.g., rent, insurance, loan payments) and which are variable (e.g., utilities, inventory, advertising). Fixed expenses typically remain constant from month to month, while variable expenses can fluctuate based on various factors. Separating these two types of expenses can help you better manage your cash flow and budget for recurring costs.

5. Calculate totals: Sum up the expenses for each category and determine the total monthly expenses. This will give you a clear picture of your overall spending for the month and help you identify areas where costs may be higher than expected or need to be addressed.

6. Review and adjust: Analyze the expenses for any discrepancies or areas where costs can be optimized. Look for opportunities to reduce expenses, negotiate better rates with vendors or suppliers, or implement cost-saving measures. When you regularly review and track expenses, it’ll help you control costs and improve your business's profitability in the long run.

How to organize expenses for your business

Keeping a clear and detailed record of expenses is vital for your business. It helps you understand where your money is going, ensures that you’re ready for tax time, and provides insights into cost-saving opportunities. Here’s how you can manage this aspect of your business effectively:

• Use accounting software or apps: Invest in accounting software or apps as these tools can automate expense tracking, categorization, and reporting, saving you time and reducing the risk of errors associated with manual data entry. You should consider using software like Ramp that allows employees to capture and submit expense receipts on the go or implement automated approval workflows to streamline the expense review and reimbursement processes. This method of accounting is particularly beneficial for small business owners who need to track expenses meticulously.

• Create a filing system: Implement a well-organized filing system, either physical or digital, to store receipts, invoices, and other expense-related documents. An organized filing system ensures that you have easy access to documentation when needed, such as during tax preparations or audits. For sole proprietors, this system is essential to separate personal and business assets for depreciation purposes.

• Implement expense policies: Establish clear and comprehensive policies and procedures for employees to follow when incurring business expenses. These policies should outline guidelines for expense reporting, documentation requirements, approval processes, and reimbursement procedures. Clearly communicating these policies to your team can help ensure compliance and minimize confusion or misunderstandings. They are especially important for business travel.

• Assign expense categories: Define specific business expense categories that align with your operations and assign each expense to the appropriate category. Common categories may include office supplies, travel, marketing, utilities, rent, and payroll expenses. Categorizing expenses accurately can provide valuable insights into your spending patterns and help you identify areas where cost-cutting measures may be warranted.

• Set reminders and deadlines: Use calendar reminders or set deadlines for expense reporting and record-keeping to ensure timely and accurate tracking. Establish a consistent schedule for submitting expense reports and reviewing expenses, such as monthly or quarterly. This practice can help prevent procrastination and ensure that expenses are recorded while still fresh in everyone's memory. It’s also a good practice for business owners to set reminders for employment tax deadlines.

• Review expenses regularly: Schedule regular reviews of your expenses to identify patterns, areas for improvement, and potential cost-saving opportunities. During these reviews, analyze expense trends, compare actual expenses to budgeted amounts, and look for opportunities to negotiate better rates or find more cost-effective alternatives.

Manage your monthly business expenses with Ramp

With so many potential tax deductions for businesses, it's important to keep detailed records of all your expenses. Whether it's a coffee purchased during a client meeting or the airfare for an out-of-town conference, every expense should be carefully documented. Proper expense tracking not only helps you accurately claim deductions, but also gives you a clear picture of where your money is going each month.

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If manually tracking receipts and expenses feels overwhelming, consider using Ramp expense management software. It allows your team to easily upload receipts and log expenses, eliminating the need for physical folders and spreadsheets. The software can automatically categorize expenses and provide monthly reports summarizing your spending. This streamlined approach reduces the risk of errors and ensures you have complete records come tax time.