How to Categorize Expenses for Your Small Businesses

 

One of the effective ways of retaining money in your business is by categorizing your small business expenses. Categorizing expenses helps all businesses keep tight control over their operating costs and also maximize cash flow and its profits and cash flow.

To effectively categorize expenses incurred in the day-to-day activities of the business, the following questions need to be answered.

  1. What are the right categories for the different business expenses incurred daily?
  2.  How often should bank reconciliation be done?
  3. What am I spending on? which category does it fall on?

Every small business is run in a different way no matter how identical the services provided might be to another. Therefore, each business should categorize their business expenses by developing a list of popular headers where each charge can be assigned to. Assigning each charge to where it belongs is important for budgeting and even tax purposes.

Some popular expense headers that are quite common to small businesses include:

  • Advertising Expenses
  • Salaries & Wages
  • Office Expenses
  • Legal and Professional services
  • Rent, Utilities
  • Traveling expenses
  • Motor Vehicle expenses
  • Business development expenses
  • Printing and Stationeries
  • Telephone and postage
  • Repairs and maintenance
  • Depreciation expenses
  • Internet expenses

In addition to creating headers, small businesses should endeavor to reconcile their bank accounts regularly. They can do that by comparing their own cash records with the bank records then investigate the difference if there is any.

it is also advisable for every small business to determine exactly what they are spending money on and assign such transactions to each category.

In the end, every small business should run a profit and loss report that will identify where they have spent the most.

 

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