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How to manage expenses as a small business

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Last editedMar 20232 min read

For many small business owners not used to dealing with incomings and outgoings on such a large scale, business expense management can be difficult, particularly without the right knowledge and the right tools. It is, however, something that can be learned and worked into your operations with minimal effort.

Most small businesses experience cash flow problems in the early days, and expenses are often to blame here, as the one thing all small businesses have in common is that they are trying to grow as quickly as possible. However, growth requires spending.

Thankfully, sensible business expense management can help cut down on unnecessary costs, streamline your operations and improve the overall financial health of your fledgling company in the long run too.

But before we discuss how to manage your expenses, let’s examine a few typical business expenses.

Business expenses

The costs incurred while running a business include everything from employee salaries to rent, utility bills and marketing. But all can be grouped into three typical business expenses.

Operating expenses

These are short-term, daily business expenses not related to production and include selling, general and administrative expenses (SG&A) such as utility bills and marketing spend, and costs of goods sold expenses (COGS) like direct labour, material costs and storage costs.

Non-operating expenses

Any expense unrelated to the business’s core operations can be described as non-operating. This includes interest expenses and obsolete inventory charges. These are, of course, not expenses that apply to all businesses.

Capital expenses

Also known as CAPEX, these expenses refer to fixed assets like buildings, equipment and machinery. If you have invested in equipment for a new project, for example, this can be classified as a CAPEX.

How to manage expenses for a small business

Knowing how much and where you’re spending is vital for running a successful small business, and a large part of that is knowing what expense management tools to use and how to use them.

Stick to a budget

With your expenses being tracked, you’ll find it much easier to stick within a set budget and achieve your financial goals. If you find yourself overspending, look at your budget and figure out how to cut back and reach that target.

There are plenty of budgeting tools available. For example, you can cut down substantially on your variable costs by using a bank pay solution like GoCardless. This reduces your reliance on expensive card fees and gives you more in your pocket to set aside for an emergency or to invest in the business.

Open a dedicated business account

Compartmentalising your finances can be a very powerful way to keep them grounded. Even if you’re a sole trader, having a separate bank account for your business expenses makes things much easier for you, particularly in January when the taxman comes calling.

All business transactions should be completed through this account. This ensures you don’t run into a situation where you have more or fewer financial resources than you thought and means you can easily sync your business account with your accounting or expense management software.

Use expense management software

Whereas businesses were once tasked with keeping track of all expenses via paper files and spreadsheets, these days it’s all about the cloud. It’s estimated that most small businesses use cloud accounting software to always keep track of their expenses.

This software is designed to be easy to use and connects directly to your bank account, so all transactions can be tracked in real time. The best expense management software for small businesses keeps your records secure, and is accessible 24/7 and safe even if your computer crashes. Paper can be lost, and spreadsheet files can be deleted, but the cloud is forever.

Keep backups of your expenses

No matter how safe and reliable you assume your expense management software might be, something could always go wrong, or criminals could always hack into your system and compromise your data. To avoid this leading to disaster, always keep a backup of your expenses.

This could be either via a cloud storage solution such as Google Drive or Dropbox, or with physical receipts and contracts stored ‘the old-fashioned way’.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with and helping to keep track of expenses as and when they occur.

Find out how GoCardless can help you with one-off or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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