How to track monthly expenses

2.10.2020
Angelica A.
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Of course, every business will need to figure out how to calculate monthly expenses. And, this will ideally happen at an early point sooner than later. That fact’s precisely why we’re giving you all you need to know about tracking monthly expenses now. Typically, learning how to track monthly expenses efficiently makes it easier to stay within budget. That’s especially the case when dealing with business costs and allocations. It’s also great practice to handle this theory well for tax purposes. 

All of the above is why companies bring a manager onboard with proven expertise. The goal here is to keep operating costs low while running at a reasonable growth rate. Whether business owners are on top of monthly expenses or delegate this to a hired team member, it’s a much-needed practice to handle a business’s cash flow well. These are all cornerstones to a thriving and profitable startup, anyway. Yet, what are we truly talking about when we speak of tracking monthly expenses? 

Let’s start with the micro on this side of business economics. 

What are business expenses?

The definition of a business expense can be considered the daily cost of keeping a business running. Also known as operational expenses or even OPEX, these costs are ideally covered out of its revenue. They’re also to be factored whenever a company needs to determine general profit. 

What are some examples of business expenses?

Think of those costs that happen on a particular cycle. Focus on the ones you can list with regularity. Those should be part of your business expense list. In case you want to take a look, the IRS will also define what you can label as such for tax purposes. But, we’ll now list some operating costs as examples to clarify what they are:

  • Advertising and marketing
  • Startup costs
  • Office space and rent (list property and maintenance fees, if they apply. Also leave room for repairs)
  • Utilities
  • Supplies 
  • Payroll, salaries, and wages (add perks and benefits here, especially if you thrive on company culture)
  • Insurance premiums (typically per year or quarter)
  • Licenses, tax, and dues
  • Professional fees, such as accounting and legal ones
  • Transportation costs (including fuel, insurance, and other travel expenses)
  • Delivery, express, and freight

Now, let’s see how you track and measure the above. 

How to calculate monthly expenses?

Estimating a business’ monthly expenses should start by determining what your operational costs are in general. For that, go back a few months if you have that margin. And/or seek transactions in which you’ve engaged repeatedly for a sample period. 

Consider annual, semi-annual, quarterly, or other frequency costs. We’re focusing on monthly dues here, but any practical efforts around this topic will also consider those that happen at different times. 

Help yourself with online accounting systems, too. This is the case if you’re starting or already used those tools as your finances kicked off. Go back to bank statements if you need them. And consider all active and inactive accounts linked to your company if you do so. Receipts, checks issued, and other docs can help you out here. 

TIP: The better job you do at defining patterns on how to track monthly expenses, the better you guarantee operational costs don’t surpass revenue. Doing so is crucial to being able to turn a business profit. 

Divide expenses into fixed and variable

A critical aspect of learning how to track monthly expenses is dividing operational costs into fixed and variable categories. Separating figures this way should also reveal what room for play you have when it comes to various budgets. You’ll find your fixed expenses relate more commonly to dire business needs, such as your rent, salaries, wages, utilities, etc. 

On the other hand, knowing which costs are variable helps recognize different efforts. Think of marketing and advertising, for instance, or about company benefits, and others. 

Also, group capital expenses for what they are. If you’re backtracking to your startup months, you might find high costs. However, those might relate to one-time purchases for equipment, for example. They could also be just one-time fees to help get your company started. Whatever the case, track them separately from what you expect your monthly running operational costs to be. 

Related: Financial Modeling 101

How to make the best of business operational expenses

Now, let’s make all of the above even more useful - and profitable - for your startup. For that, consider how much you should be spending versus what you’re tracking in your Excel sheet. And, to begin, note this is something you should be asking yourself. 

Compare your expenses, as we defined above. Yet, also ask yourself (or your business manager) what you should and could be spending instead. The records should be a tool to measure ideal grounds. Don’t make them just an immovable reflection of your finances for bookkeeping. 

There are several theories to go by in terms of setting operational expenses. One of them is limiting your business costs to a specific portion of your overall income. Some say that “A payroll that exceeds 30% of gross revenue is one of the most common reasons businesses fail,” for example. Take those into account.

Help yourself with percentages

And, speaking of percentages, it might help to turn your net figures into those. The idea is to accurately see where your higher values are going. 

Also, set target incomes. Do so, especially in terms of net profit after taxes, for example. Set goals to keep working towards them as you review these numbers on a steady basis. You can then also think about working on budgets for the near and far future. For that, include expense increases and raises, for instance. Percentages are also of great help when it comes to these kinds of projections. They should ease how you make calculations.  

Take control through monthly expense tracking

Last but not least, having a range of monthly expense tracking should let you work with yearly records, as well. That helps forecast peaks and slow times. A financial model template can also help.  It will also reveal high expenses compared to steady operational fixed ones, for example. Take into consideration also tools like Monthly, that will help you keep track of your SaaS expenses easily. 

All in all, this kind of work should be a strong financial tool for your business management and enlighten your business goals and plans. Use it to unveil problem areas or different solutions, to guide alongside other aspects of your business into financial health - and wealth.

Track your expenses

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