Getting a grip on your expenses Jul 3, 2019Views: 452
No matter what the size of your business is, keeping tabs on your company’s expenses can be challenging, time-consuming and cumbersome. Time is a valuable but often scarce commodity, especially for sole traders and self-starters.
With the advent of financial technologies and open banking, it is now much easier to collect a digital record of your small business expenses, as the paperwork has been significantly reduced. The Amaiz app automatically records and categorises your taxable expenses as you make purchases, but you don’t have to stop there – the financial health of your business is something you want to keep an eye on constantly.
First things first, you need to get a grasp on some general terms.
Business expenses definition
Any expenses that are incurred to produce the goods or services that your business provides can be classified as business expenses. An expense is only allowable for tax purposes if it's incurred wholly and exclusively for the purposes of conducting your business.
The expenses your business incurs will depend on the industry your business operates in, the stage that your business is at and other factors that relate to the operation of your business.
Below you’ll find some practical and common approaches to slicing your business expenses.
Fixed vs variable
Every business owner must keep track of their daily, monthly, and recurring business expenses. Some expenses will be fixed, and some will vary depending on how many sales your business is doing. Click here to read more on business expenses.
- Fixed Expenses—an optimal way to estimate your fixed costs is to look back on your previous months’ expenses and use this to forecast your expenses for a future period. You will most likely have to assess your fixed costs such as rent, business rates, utility bills, employee salaries, employer’s NI, software subscriptions, mobile phone bills, and professional fees for solicitors and accountants, for example. Most fixed costs generally won’t change much, but there are other factors which may cause these fixed costs to change. For example, if you are planning to grow your business over the forthcoming year, these fixed costs may change. Fixed costs are usually paid on a recurring basis (weekly, monthly, quarterly, annually)
- Click here to read more on variable expenses.
There are two types of expenses that a business will incur: capital expenses (Capex) and operational expenses (Opex). Capital expenses are expenses that are incurred to purchase tangible or intangible assets. Capital expenses provide future economic benefits to the business and are normally kept in the business for more than one accounting period. Any expense that is capitalised will need to be depreciated over its useful economic life (how long you expect to use the asset for). Examples of capital expenses include the cost to buy machinery, computers, software, etc.
Operational expenses, on the other hand, are all regular expenses that are unlikely to have future benefits and these are expenses that your company has to make to maintain its daily operations. Examples of operational expenses include rent, employee salaries, travel expenses.
Here you can learn more about distinguishing between different subcategories
Capital expenditure is listed under "Tax allowances for vehicles and equipment (capital allowances)." Allowable expenses include:
- vans and cars
- tools and computers
- shelves, furniture and electrical fittings
There are, however, some greyer areas, so when in doubt ping our accountancy experts via the in-app chat if you have an account with us or right from the website if you don't. They will point you in the right direction and help you figure out which rules are applicable in your particular case.
All businesses want a grip on their expenses and are continually striving to save money. The Amaiz app categorises the expenses charged to a Mastercard card based on where the purchase is made and represents them in a neat interactive pie chart. This chart can be used to:
- Keep track of where your business may be overspending week-to-week, month-to-month—this will help you to allocate the resources, plan for the future and change course if necessary.
- Get ready for the next self-assessment nice and early—tracking your allowable expenses in real time can help you estimate how much tax you'll end up paying.
Making your business purchases with the Amaiz card helps to save your time, filling in your self-assessment in real time.
In an upcoming blog post, we’ll be covering another aspect of managing your company’s financial health—cashflow.
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