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What are Business Expenses? To operate and manage a business, entrepreneurs need to cover various expenses. Understanding these costs allows businesses to devise appropriate business strategies and adjustments to generate profits. Knowing these types of expenses, businesses can formulate business solutions and make appropriate adjustments to bring in profits.
1. What are Business Expenses?
Expenses represent the value of resources used in business operations to achieve revenue and profit goals. Essentially, expenses involve trading one outcome for another, which can manifest as tangible assets like products, factories, money, or intangible assets like knowledge and services.
=> Business expenses comprise all production costs, product consumption costs, business management costs, and applicable taxes that a business must incur to carry out its business activities within a certain period.
2. What makes up Business Expenses?
Production Costs of Products: Various materials (raw, natural materials, tools, equipment...), depreciation of machinery and equipment, wages, and deductions for employees' wages (social insurance, health insurance, unemployment insurance, union fees).
Product Consumption Costs: Businesses must allocate certain expenses such as sales expenses (packaging, transportation, preservation, product introduction, product warranty) and other costs for product promotion (marketing, advertising,...)
Business Management Costs: These costs serve the general operation of the organization, such as executive salaries, administrative staff salaries, office depreciation, utilities... These management costs usually do not fluctuate with revenue, so comparing the rate of increase in business management costs to the rate of increase in revenue will help evaluate management efficiency.
Taxes (VAT, Corporate Income Tax, Export Tax, Import Tax): Taxes are expenses that the company has to advance for consumers of goods and are only recovered when the products, goods, or services are consumed. Therefore, it is considered a business expense of the company.
Non-production Costs: Non-production costs are expenses related to sales and company management activities. These costs may include customer management costs, marketing costs, customer care costs...
3. Types of Business Costs
There are various criteria for classifying these costs, specifically:
Classification Based on Business Operation Functions
- Production Costs
- Direct material usage costs: Money used to purchase raw materials for product manufacturing, serving business needs
- Common production activity costs: Expenses incurred within the workshop scope to directly serve the product manufacturing process
- Non-production Costs
- Sales costs: Typically includes office expenses, depreciation of fixed assets,...
- Company management costs: Typically includes office expenses, depreciation of fixed assets,...
Classification Based on the Degree of Operational Activity
- Variable Costs: Fees that are proportionate to the production results or the company's scale of operations.
- Fixed Costs (departmental fixed costs and general fixed costs): Actual and fixed fees related to the field and scale of the company's operations.
- Mixed Costs: Fees that fall within variable and fixed costs, typically including common production costs, costs of using construction machinery, sales costs, and company management costs.
4. Strategies for Reducing Business Costs
Every business wants to optimize the above costs to minimize this figure as much as possible. In this digital transformation age, business management software has emerged to assist companies in managing certain aspects of their operations. This ensures a unified, logical, fast, and labor-saving operation, avoiding losses and reducing unnecessary expenses.
To explore some popular business management software available today, please refer to the article: What is Business Management Software?
Moreover, nowadays, many businesses have integrated information technology into their operations: electronic invoicing, online accounting software, e-tax, e-insurance, remote contract signing, and more.
Another way to reduce these expenses is to optimize material and facility costs and limit unnecessary expenditures.
Above, Vntrip has provided readers with essential types of expenses necessary for running a company as well as solutions to optimize these costs. Understanding these items will help individuals balance budgets and plan development more reasonably.
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