Track YOUR Business Expenses! Common Business Expenses Explained (with list + examples)
As a business owner, it's essential to understand your expenses to ensure that your company is running smoothly and profitably. Expenses are the costs associated with operating a business and can be divided into several categories. In this blog post, we'll explore the different types of business expenses and what they entail.
Cost of Goods Sold (COGS)
Cost of Goods Sold, commonly referred to as COGS, is the cost of producing or acquiring the products or services that a business sells. COGS includes the cost of raw materials, direct labor, and any other costs associated with producing the product. For example, if you own a bakery, the cost of flour, sugar, eggs, and butter would be included in your COGS.
Operating Expenses
Operating expenses are the ongoing costs of running a business that are not directly related to producing a product or service. These expenses include things like rent, utilities, salaries, and insurance. Operating expenses are necessary for a business to operate, but they don't directly generate revenue. For example, if you own a retail store, your operating expenses would include the rent for your storefront, the salaries of your employees, and your utility bills.
Marketing and Advertising Expenses
Marketing and advertising expenses are costs associated with promoting a business and its products or services. This includes things like creating ads, running social media campaigns, and printing marketing materials. For example, if you own a software company, your marketing and advertising expenses might include the cost of creating and running ads on LinkedIn and Facebook.
Depreciation and Amortization
Depreciation and amortization are accounting methods used to spread the cost of long-term assets over their useful life. Depreciation is used for physical assets like buildings and equipment, while amortization is used for intangible assets like patents and copyrights. For example, if you buy a delivery truck for your business, you can't expense the entire cost of the truck in one year. Instead, you must spread the cost of the truck over its useful life, which could be several years.
Interest Expense
Interest expense is the cost of borrowing money to operate a business. This includes things like interest on loans, credit card debt, and lines of credit. Interest expense can be a significant expense for businesses that need to borrow money to grow or maintain operations.
Non-Operating Expenses
Non-operating expenses are expenses that are not related to the day-to-day operations of a business. These expenses include things like losses from investments, impairment charges, and restructuring costs. For example, if your business invests in the stock market and experiences a loss, that loss would be considered a non-operating expense.
In conclusion, understanding the different types of business expenses is essential for any business owner. By categorizing your expenses correctly, you can better manage your finances and make informed decisions about the future of your business. Remember that expenses are a necessary part of running a business, but by keeping them under control, you can ensure that your company remains profitable and successful.
