How do I calculate business expenses?
Calculating your operational expenses is an essential part of the day to day running of any business. If you know what’s going out on a monthly basis, you can easily calculate what your profit margins are and whether or not you’re turning a profit at all. It enables you to budget correctly and helps you to save should you need a reserve an amount in the event of emergencies or major purchases. By viewing your business expenses on a regular basis, you can also see if money is being spent unnecessarily and cut back accordingly.
Property and utilities
Rent and bills for utilities make up a significant percentage of the outgoings for many firms. Depending on the nature of your business and its location, utility bills can vary according to the time of year and the weather outside. The best thing to do is to calculate the total expenditure for the entire year and divide it by 12, and you’ll determine an average monthly figure.
Next, you’ll have to identify the overall monthly cost of rent, or if you own the property, the mortgage payments which should remain constant on a monthly basis. Add to these figures any rates or other fixed outgoings for the premises, including buildings and content insurance and you’ll have a monthly figure that covers the costs of operating your company’s premises.
Supplies can include a whole host of things depending on what type of business you operate. If you’re office-based, then this is most likely to include items such as printer paper and stationery. If you run a store, then the bulk of the expense will be associated with the purchase of inventory. Calculate the total cost of your monthly supplies. For any supplies purchased on an annual basis, then again divide the price by 12. Items such as janitorial supplies should also be factored into this calculation.
The wage bill will constitute the bulk of many firms’ overall expenses. To see exactly how much, you’ll have to add together the total salary bill, employers NI, pension contributions and so forth. It’s also important to add any expenses your employees might have incurred through business credit cards, the use of petty cash, or out of their own pockets to be reimbursed later.
One effective way of keeping track of employee expenses is to use a Soldo prepaid business card. Starting off with a zero balance, money can be added to the card via an integrated console. Business owners or their finance teams retain absolute control of each employee card, authorising or excluding certain types of transactions, imposing limits, adding money and defining other rules including geographical constraints where necessary. The data can then be exported and analysed, assisting in improved future forecasting of expenses.
You’ll probably find that you have other expenses that may not fit into the categories listed above. They will differ depending on the nature of your business. For example, you will probably need to add employer’s liability and public liability insurance into the mix no matter what kind of business you’re operating.
You might want to include a fixed amount that goes towards an emergency fund that protects you in the event that you find your insurance does not cover you. Once again it’s best to add all of these expenses for the year together and then divide by 12. Then you’ll know exactly what your budget should be on a monthly basis, along with your total outgoings.
If you’re interested in finding out more about Soldo’s prepaid business card and our comprehensive spending management system, visit us here.