Small Business Expenses List: Essential Costs You Should Track

Every small business needs to keep track of its expenses, or it may miss identifying areas where it has losses. The first step of understanding your expenses is knowing how to categorize them correctly.

Below, we’ve provided an overview of the small business expenses list, discussing the 25 most common costs you will incur as a business owner. We’ve also provided the steps and tips for tracking these expenses.

Let’s proceed to the blog!

TL;DR – Small Business Expenses List

Tracking small business expenses may seem straightforward. However, they fall into different categories that require distinct approaches when it comes to bookkeeping.

Here’s a breakdown of small business expenses we’ll expound on throughout the article:

We’ll discuss these expenses in detail in later sections of this blog.

You don’t have to feel overwhelmed by this list of expenses. At AccountsBalance, we offer monthly bookkeeping services to help you categorize your transactions effectively. We also provide accurate financial statements on the 15th and 20th of each month, allowing you to act on the insights promptly.

Schedule a call today and let’s discuss how we can help you take control of your business expenses!

Importance of Budgeting for Small Business Expenses

Budgeting is the first step in maintaining an effective financial management system. Although it may seem mundane, it makes up for it by providing clarity and direction.

Here are some reasons why budgeting is essential:

• Control Over Your Finances: A budget clearly stipulates what your business can and cannot afford. Though this might seem like a constraint, it helps you avoid overspending. It also forces you to think outside the box when planning expenditures.
• Informed Decision Making: Having a budget provides a framework through which you can make appropriate business decisions. For example, it will help you decide the right time to reinvest in the business and expand, when to bring in new hires, and when to hold back on expansion.
• Establishing and Tracking Goals: Budgeting allows small businesses to set realistic short-term, medium-term, and long-term goals based on reliable data. Consequently, the budget makes it simpler to track the set targets.
• Mitigating Risks: Effective risk management is crucial for small businesses to ensure that both internal and external shocks do not disrupt operations. Budgeting does this efficiently by allowing the setting up of rainy day funds and accounting for revenue fluctuations throughout the year.

Fixed Expenses for Small Businesses

These are expenses that rarely fluctuate from month to month, making them easier to account for. 

1. Rent or Lease Payments: In most cases, the most significant fixed expense for small businesses is the rent or lease. Rents or leases are subject to an agreement with the landlord for a stipulated amount of time, typically anything from one year to over ten years. It applies to office spaces, warehouses for inventory storage, and storefronts.
2. Insurance Premiums: Insurance is a crucial necessity for protecting a business against potential risks, such as fires and liabilities, including injury compensation. Luckily, insurance premiums applied to such protections are fixed monthly or annual payments. Examples include premiums for general liability insurance, workers’ compensation insurance, malpractice insurance, property insurance, and health insurance.
3. Loan and Lease Repayments: Repayments on your business loan principal and interest remain fixed regardless of your business’s revenue in a particular month or quarter. The same applies to payments required for leasing equipment, so you must account for them when determining your expenses.
4. Permanent Employee Wages: If you have a team of salaried employees at your business, their weekly or monthly wages remain the same throughout the year. The only time this might change is if you hire or fire staff or give raises, which then establishes a new fixed payroll amount. 
5. Software Subscriptions: Software as a service (SaaS) subscriptions are vital to keeping small businesses operational since they simplify tasks that may require maintaining permanent in-house employees. Examples include Microsoft 365, QuickBooks, and customer relationship management (CRM) tools like NetSuite. SaaS subscription prices are consistent and stable.

Variable Small Business Expenses

These are expenses that fluctuate depending on factors such as product demand. Therefore, they are tougher to account for. 

6. Raw Materials: The raw materials required to produce new products depend on factors such as the volume of products sold in the last accounting period. More sales mean lower inventory, thus requiring more raw materials. External factors, such as supply chain constraints, can also cause fluctuations in raw material costs.
7. Hourly Wages: Small businesses that hire temporary staff or freelancers to cover extra shifts usually pay based on hours worked. This means that the longer you need additional help, the higher the wage costs.
8. Sales Commissions: Sales commissions are a good motivational tool, as employees receive higher compensation when they meet specified sales figures. As a result, during low sales seasons, the commission costs remain low, while during high sales seasons, the costs balloon.
9. Utility Bills: Utility bills, such as electricity and water, fluctuate based on monthly usage. Additionally, seasonal changes will impact usage; for instance, winter increases heating costs. The cost of other utilities, such as gas and heating oil, can also be influenced by external factors, including global market trends and energy tariffs.
10. Shipping and Delivery Costs: Shipping and delivery costs often fluctuate depending on factors like the volume of orders, frequency of deliveries, and the destinations. If your business ships internationally, the costs may be affected by external factors, such as changes in carrier rates.

Operational Small Business Expenses

These are expenses incurred during the day-to-day running of a business.

11. Office Supplies: Office supplies are typical small business expenses. They include everyday materials such as paper, pens, markers, and highlighters, as well as staplers and staples, and printer ink. They often seem negligible, but the expenses pile up quickly.
12. Professional Services: Businesses sometimes need to outsource their operations to specialized professionals. For example, outsourcing legal, accounting, IT, and design tasks. You can pay for the services based on hourly rates, per project rates, or pay a retainer fee.
13. Business Travel and Meals: Business travel can be essential to the success of a small business, depending on the industry. It is, therefore, necessary to keep track of expenditure on travel and meals. Examples include flights, conferences, client meetings, taxi rides, and hotel stays.
14. Equipment Maintenance: Regular maintenance of equipment, like vehicles, machinery, and appliances like computers, printers, and photocopiers, increases your operating costs. However, it is an essential expense, as it ensures the equipment and machines stay in good working condition, thereby preventing more costly replacements down the road.
15. Marketing and Advertising Costs: Marketing and advertising are essential for retaining existing clients and attracting new ones. It boosts the brand and lays out the products and services on offer. The cost varies depending on the size of the campaign. A promotional post on social media can be more cost-effective than a magazine ad or a billboard.

Tax-Deductible Expenses for Small Business

These are expenses that you can subtract from your total revenue to reduce your overall taxable revenue. 

16. Startup and Organisational Costs: Businesses incur startup and organisational costs before they begin operations and generate income. Examples include incorporation costs when registering the business, permit fees, regulatory approvals, and market research. Typically, you can deduct such costs from your initial revenue or spread out the deduction over several years.
17. Depreciation Costs: Depreciation costs represent the gradual decline in value of a fixed asset over time. Examples of assets that lose value include vehicles, machinery, furniture, electronic devices, accessories, and appliances. Accounting for depreciation costs helps with efficient tax planning, having up-to-date asset values, and stretching out asset replacement costs over several years.
18. Loan Interests: The loan interests on almost all types of business loans are tax-deductible, provided the funds are used for legitimate business purposes. Such benefits apply to interest levied on both large and small loans. For example, interest on term loans used for expansion or equipment purchases is tax-deductible. The same applies to interest on commercial mortgages, credit cards, and government-backed loans.
19. Professional Development: Funding the professional development of your employees is tax-deductible, as it helps improve productivity and enhances the business’s competitive edge. Examples include training programs like workshops, conferences, and seminars. It also includes certified courses and examinations.
20. Employee Benefits: Businesses invest in employee benefits as a means of attracting, retaining, and motivating top talent. Such benefits include health insurance, retirement contributions, and disability insurance. Other costs that many businesses do not realize are tax-deductible include: employee commissions, bonuses, and paid time off.

Unexpected Small Business Expenses

These are expenses businesses incur due to unforeseen circumstances.

21. Emergency Repairs: Equipment often breaks down at the most inopportune time. For instance, the delivery van could stall in traffic, or the fuse box could blow due to a short circuit. In such cases, having an emergency fund can be extremely helpful.
22. Legal Fees: Legal proceedings initiated by a contractual dispute, compliance issue, or customer lawsuit may result in substantial legal penalties upon conclusion. It is therefore essential to consistently renew your general liability insurance, as it can help cover legal claims up to the cap provided by your policy.
23. Damage from Natural Disasters: Natural disasters can cause extensive damage, resulting in high costs for repairs and replacements. For example, a hurricane could destroy doors and floorboards, while an intense heat wave could damage an HVAC system.
24. Rising Supply Costs: Numerous external factors can contribute to the sudden spike in raw material and inventory costs. They include: global shortages, supply chain constraints, government interventions, and inflation.
25. Unplanned Hiring: A high employee turnover rate can lead to mounting unplanned hiring costs. Costs associated with hiring new employees can include recruitment fees, background checks, and training expenses. Unplanned hires can also increase your wage costs, as attracting new talent may require offering pay bumps, especially when there are labor shortages in the market.

How to Track Expenses for a Small Business

Tracking expenses for small businesses is crucial, given how many of them operate within strict budgets. Here is a step-by-step guide on how to stay on top of your expenses:

• Separate Personal and Business Accounts: Having separate accounts dedicated to your personal and business finances allows you to keep them distinct when spending. It is also beneficial during tax season, as you can clearly allocate expenditures to the appropriate account.
• Using Accounting Software: Introducing accounting software for small businesses into your operations will help you keep track of costs and revenue. Examples of these solutions include Wave, Xero, and QuickBooks. Also, take your time when choosing one and ensure it meets your needs and operating model. 
• Choose Between Cash and Accrual Accounting: The accounting method you choose is vital to how you reconcile your costs, revenue, and taxes. Cash accounting is the more straightforward method because it only acknowledges revenue when it is paid. On the other hand, accrual accounting is more complex and recognizes revenue earned even before the receipt of cash payment. 

Read more about accrual accounting vs. cash accounting.

• Regular Record-Keeping: Maintaining accurate records makes it easier to understand your business’s financial position. It is advisable to do this on a weekly or monthly basis to prevent records from accumulating.

Tips for Managing Small Business Expenses

We understand that running a small business requires an owner to perform multiple roles, including marketer, accountant, and human resource manager. 

Here are some bookkeeping tips to boost accuracy for your business:

1. Budget for Different Expenses: As highlighted earlier, businesses incur different types of expenses. Having dedicated funds for each type will simplify the bookkeeping process. Once you set aside fixed expenses, you can prudently allocate funds to other costs and have some left for emergencies.
2. Identify Cash Flow Patterns: Tracking revenue and expenses is not just about the amounts coming in and going out. You should also note cash flow patterns that could affect the business. Such patterns will help you identify low and high-volume seasons and allow you to prepare accordingly.
3. Minimize Costs: Many small businesses incur unnecessary costs. For example, a company might maintain a paid subscription service it no longer uses instead of cancelling it. Other ways to minimize expenses include finding cheaper and more reliable suppliers, reducing waste of raw materials, and avoiding a bloated workforce.
4. Go Through the Financial Statements: A business’s financial statements declare its actual economic position at any given time. Therefore, it is crucial to read through your balance sheet and profit and loss statement.

Tip! Consider our monthly bookkeeping services and receive financial statements every 15th and 20th of each month.

Frequently Asked Questions (FAQs)

Got questions? Here are answers to some questions that small business owners ask regularly:

What Are Common Expense Mistakes Small Businesses Make?

Common mistakes small businesses make include: 

• Having the same personal and business account
• Failure to keep accurate records
• Failure to budget
• Poor tax planning

What Expenses Should Be Capitalized Instead of Deducted?

Expenses that should be capitalized are those that will provide long-term benefits. They include construction costs and capital assets, such as machinery, vehicles, and equipment.

Automating routine operational tasks can also reduce ongoing manual labor costs. By improving efficiency in areas like deliveries and internal logistics, businesses can redirect staff time toward higher-value work. Tools such as mailroom automation software make this easier by streamlining every step of inbound and outbound item handling. It helps minimize errors, boost productivity, and support long-term scalability.

How Often Should I Review My Business Expense Reports?

There is no perfect timeframe to review your business expense reports. However, it is advisable to review them on a weekly or monthly basis, depending on the volume of reports generated.

What Is the Best Accounting Software for Tracking Expenses?

The best accounting software for tracking your expenses depends on your specific needs. However, there are several we believe will meet your needs, like:

• QuickBooks
• Wave
• Xero

Conclusion

Business expenses are numerous. We hope our blog has helped you understand where each expense falls. Use the bookkeeping tips we’ve discussed to help you in your day-to-day operations, from lowering your tax obligations to preparing you for unpredictable events.

However, staying on top of all these expenses can be challenging. Partner with the best bookkeepers at AccountsBalance. We customize our services to your business needs, providing accurate and timely financial records. That means you have a stress-free tax preparation season and more time to focus on your business growth.

Gain financial clarity by scheduling a free call with our founder today.