Analyzing and interpreting business expenses

Quick insights

• Business expenses refer to any costs incurred while running a business.
• A few examples of common business expenses include travel, employee wages and office rent/utilities.
• Many businesses use expense reports to keep track of expenses on an ongoing basis.

Analyzing your small business expenses can help you understand your business’ overall financial health and whether you’re sticking to your budget. Many businesses choose to record expenses through expense reports and save these reports in accounting software for future reference.

Regularly reviewing expenses may allow business owners to improve their budgets and spending over time. Learn more about common business expenses, how expense reports work and how you can analyze and interpret business expense data.

What are business expenses?

Business expenses are any costs related to running your business. Expenses may vary between companies, but may include categories like travel, mileage and payroll.

Tracking your business expenses (and their categories) can help you maintain accurate bookkeeping records and create realistic budgets based on data.

Common business expenses

Business expenses vary between companies based on factors like industry and company size. A few examples of common examples include:

• Employee wages
• Insurance
• Airfare
• Lodging
• Mileage
• Other travel expenses
• Rent
• Utilities
• Advertising
• Postage/shipping
• Continuing education

Many businesses choose to use expense reports to keep an eye on business expenses and properly reimburse employees if necessary.

How expense reports work

Expense reports are forms that include details about specific business expenses, plus related receipts for purchases. Typically, employees create expense reports (either via a spreadsheet template or accounting software). Then, a designated financial stakeholder reviews and approves reports. If applicable, the employee is reimbursed for approved expenses.

It can be useful to create an expense report policy, even if you run a small business. This way, you’ll have a record of expenses and accompanying receipts once it’s time to file for taxes.

Here are a few examples of details often found on expense reports:

• Purchase dates
• Description of each purchase
• Receipts for each purchase
• Expense category for each purchase
• Subtotal for each category
• Subtotal for all categories
• Total reimbursement amount

How to analyze and interpret business expenses

It may be beneficial for finance stakeholders to review expenses each month to check if the business is on budget and on track for any financial goals. Insights from this review can help inform future budgets, find areas for improvement and more accurately forecast for the future.

Here are a few steps you can take to begin analyzing and interpreting business expenses:

Gather all expense data

Documenting all current expenses can be a good first step in analyzing your overall financial situation. Gather data from any relevant places, including:

• Expense reports
• Bank statements
• Business credit card statements
• Receipts
• Invoices

It may be easier to collect and save this kind of information through an accounting software platform. This type of software typically allows businesses to attach receipts and invoices, automatically generate expense reports and link directly to bank accounts.

Categorize expenses

Categorizing business expenses helps illustrate areas where businesses spend the most (and least) money. Implementing a company expense report policy can help encourage employees to include categories for each entry on their expense reports.

If you notice that your business spends a lot of money on one category, you can dive into specific expenses to see if there are any areas where you can cut unnecessary costs. For example, you may be paying for two marketing platforms that provide similar services.

Identify trends

Now that you’ve organized your financial information, you may want to search for patterns in your business expenses. Are there specific times of year when you tend to spend more vs. save more? Have you consistently exceeded budget in the same categories over the last few months?

Consider compiling a list of trends and reviewing them to find out where you can improve. It may also be helpful to compare spending to your budget to identify potential trends.

Make spending adjustments

You may also choose to update your budget based on your findings. Once you have enough financial data, you may realize your budget wasn’t realistic in the first place. Or perhaps your business goals have changed recently. Regularly reviewing business expenses can be a healthy practice to help meet your business goals.

Leverage business credit card capabilities

Using a business credit card can also be a useful way to analyze your expenses. Many business credit cards offer employee cards, which are linked to the company’s credit card account (and, in turn, potentially streamline expense management).

Business credit cards like the Chase Ink suite of credit cards also provide capabilities to set spending limits for employees and monitor individual spending.

Many business credit cards also allow cardmembers to earn rewards on everyday business purchases. Business owners may choose to use these rewards to reinvest into their business, which could potentially reduce some expenses.

In summary

 Whether you choose to use accounting software or track expenses in spreadsheets, it can be useful to save your business’ financial data. This practice can also offer invaluable insights into how much you're spending and in which categories. If you don’t already monitor your business expenses on a monthly basis, you may want to consider doing so.