Business Expenses: Is Your Business Putting Its Money to Good Use?

Posted on Dec 09, 2013

In business, budgeting is often a dilemma between cutting cost and pursuing a certain necessary expense. One example of which is deciding whether to stick to ink jet printers or get advanced label printing solutions. The inability to identify which expense is important and which is not can affect a business’ finances in the long.

Spending money creating aesthetically pleasing outside surroundings like those offered by concept concrete driveways kew is a good investment, but the choice of concrete or a landscaped lawn will make a great difference to your maintenance budget.

The question now is: Are you putting your money to good use?

Investing in a second home to let out on the rental market can be a great way in which to make your money work harder. Second Mortgage Loans can provide you with the finances required to get your plan into action. So all you've got to do now is to find the perfect investment property to put your money into.

Understanding a Business Expense

A business expense is both ordinary and necessary. No business can operate without incurring any expenses. Utility expenses, employee salaries, and so on are ordinary and necessary expenses in business operation.

For example, if you have a service business offering printing services, one of your expenses will include colour label printers, inks, toners, printing papers, and supplies. These are necessary expenses your business has to incur in order to deliver the service – and they are just the tip of the iceberg. You also have the space’s rental, electricity bill, employee salary, and taxes to deal with. You can’t avoid these expenses because they are both ordinary and necessary.

On the other hand, there also those business expenses that you can avoid or cut. In a retail business for example, you can use the basic label printing solutions in the checkout counter, instead of the ultra expensive models. Other expenses that you can avoid are office supplies (as you can go paperless), subscription to business publications, etc.

Business costs in some circumstances however really shouldn't be avoided and this is particularly the case when it comes to investing in staff productivity. It's been shown that the environment in which we work has a major impact upon our productivity. That said, investing in office design in Melbourne provides a real boost to any business, and is a cost that simply should not be left to chance.

Classifying business expenses — in particular, understanding their impact on your business — is crucial in ensuring that your money is put to good use. The following are the two ordinary business expenses that necessary for your company’s operation:

Cost of Goods Sold

If you are in the manufacturing business, COGS will be a necessary part of your expense. You won’t be able to create anything (any product) without this. COGS includes the expenses you incurred in creating the goods (raw materials, processes, etc.) as well indirect expenses related to its distribution and sales (packaging, sales staff’s salary, and so on).

Now, it is important that you keep a record of the direct costs attributable to production and sale of your goods. Knowing your COGS will help you determine your profit using a simple formula: total revenue minus total cost of goods sold. Good inventory management is important in this. It helps you track the number of products you have sold and the remaining stocks. But it can be tricky at times, especially if you are running a large business that sells hundreds of items. This is where inventory services come in. The experts can help you manage and keep track of your assets.

Capital Expenses

Capital expenses refer to those costs incurred for basic assets and are usually intended to boost productivity and efficiency. Examples of which are furniture, machinery, and property. They do not include expenses incurred for day-to-day operations such as marketing, maintenance, inventory and payroll.

Capital expenses are one of those areas in business where you can put your money into good use. Examples of which are expanding store to increase capacity and constructing a new branch to cater to more customers. Another good example is investing in Opticon handheld scanners to improve checkout efficiency and prevent long customer queue in the counter, especially during peak shopping hours.

The key to effective business financial management is understanding which cost are necessary and which ones are not. It makes financial decision making a breeze.