Your business plan includes a breakdown of income and expenses. Outlining your expenses is a fairly simple process and usually includes your earnings, product sales, investment income and other savings.
Listing your expenses can be a little more complex, but it’s just as necessary for a well-defined business plan.
Why is this important? Because most businesses need to borrow money at some point and having your budget and financial spreadsheets in order is crucial to obtaining a business loan.
What expenses should be on your monthly expense list? Learn the costs you need to include in your monthly reports to create a more effective business plan and be eligible for business loans.
Operating Expenses (OPEX)
Start your expense list by listing each of your fixed costs, which are typically bills you pay each month for the same amount.
The easiest way to make sure all your operating expenses are included is by reviewing your bank statements.
Payroll, commercial rent or mortgage payments, and utility bills are a good place to start. Consider your costs for internet connectivity and web hosting. What are your legal and accounting services fees each month?
Round out your fixed expenses with your government and bank fees and business insurance. Anything you see in your statements that show a payment for the same amount each month can be listed as a fixed expense.
While you’re looking at your expenses, try to see where you can reduce operating expenses with minimal impact to your business.
Expenses that change each month are your variable expenses. These expenses are often directly related to the growth of your business.
In other words, you can spend more or less on these items based on the current profit margin for your business. If your business is growing faster than expectations, you can direct the extra profits towards your variable expenses to grow faster.
Variable expenses include the following: contractor or outsourced wages, raw materials, advertising and marketing services, transportation and travel expenses.
One benefit of adhering to a budget is that you can take one-time expenses into account.
Some expenses come out of nowhere and can’t be avoided, like the replacement of a broken computer. Other expenses can be included in your budget several months beforehand, like an industry conference where you can make connections. Including these one-off expenses can shield your business from financial stress.
Here are a few one-time expenses to use as a springboard for filling out your monthly expense list: computers, software, office supplies and furniture, business conferences, company parties, and employee gifts and incentives.
Why Your Monthly Expenses List is Important?
Having a monthly expenses list is helpful in managing your cash flow and budget. Maintaining and adhering to your budget is important to protect your company from financial burden. Finally, a good budget is also critical for landing a business loan to help your company grow.
Looking for business funding? We can help. Check out our loan options now.