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Different types of expenses in business

There are many different types of expenses in business some of which you can control and some of which you can’t. There are different ways to record expenses and some cash layouts for goods are not initially accounted for as expenses but are actually recorded as assets like Inventory.

The expenses harder to control are the expenses directly related to the products or services you supply. The materials that go into producing a product including the labour are not always easily controllable. There are trade-offs between price, quality, delivery dates, quantities, availabilities, and importing. Buying large quantities of materials can lower your per unit cost however if you are unable to use the material in a reasonable time you may be tying up money that could be working for you in other ways. If you tie up all your cash purchasing large volumes of materials at a low price you may not have any funds left to build your products or get them to market.

Expenses easier to control are the expenses that are not imperative in operating your business. Expenses like office furniture which can be purchased used or leased these expenses may be necessary but they won’t affect the quality of the products you sell. You may or may not have some control over the property you lease and the utilities will vary in cost depending on the size of property. How much control you have on the monthly rental will be determined by market conditions and availability.

Managing your Cash Flow will help you monitor your expenses and keep you informed as to where the outflows of cash are. If you know what your monthly expenses are you will be prepared for potential cash shortages and you can adjust your expenses and outgoing payments to ensure you have funds to operate your business. When you can’t adjust your expenses in a cash shortage situation you should have a plan in place where other funds can be relied on to carry the business through until cash inflows can offset the cash outflows.

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