Managing your budget can be intimidating—especially when you view it all at once. That's why it helps to break your finances down into individual budget categories.
By creating categories for your fixed and other expenses, you'll be better equipped to create a spending plan and optimize your cash flow. You'll also be able to quickly identify problems and shortfalls in your budget, improving the financial health of your business.
What are budget categories for businesses?
Every business has monthly expenses. These include the fixed expenses of your real estate or equipment and flexible expenses such as payroll, inventory, and specific business services.
If you use a household budget, this process is similar to designating personal budget categories such as retirement savings or streaming services. The difference, of course, is that you're aiming to create a budget that fits your business goals.
Creating categories for budgeting allows you to further divide your fixed and flexible expenses into specific areas, such as insurance or travel expenses. The more you divide your expenses into budgeting categories, the more easily you can identify your spending habits and adjust to maintain a positive cash flow.
Additionally, if you leave enough margin in an emergency savings account, you'll be more resilient when your business is put to the test.
These budget categories will also serve as a record of your business expenses. That'll be especially important during tax season when you can deduct business costs to reduce your company's tax liability and allow you to save money.
Common small business budget categories
While financial goals vary by company and industry, some essential budget categories are common across all business types. Here are some of the most common business budget categories you can use to shape your finances.
Insurance
Insurance premiums are among your most common fixed expenses. Business owners pay for insurance products such as:
- General liability insurance
- Professional liability insurance
- Workers compensation insurance
- Unemployment insurance
- Business owner's policy
- Commercial auto insurance
- Business renters insurance
Depending on your business, you may also pay for product liability coverage, cyber liability insurance, or business interruption coverage. These premiums can be combined and listed under your insurance budget category.
Utilities
Even though some utilities rise and fall each month, your total utilities category will generally be classified among your fixed expenses since it doesn't change that significantly. This includes things like:
- Electricity
- Water
- Power
- Internet
- Trash service
Keeping these expenses as a separate budget category will also enable you to anticipate future utility costs based on past usage, which can be important for financial forecasting.
Advertising and marketing
Make sure to include marketing expenses in your monthly budget. This can include such costs as:
- Digital and pay-per-click ads
- Website maintenance charges
- Print materials
- Email marketing software
- Research on consumer trends
- Promotional merchandise
Your marketing/advertising category should also include the cost of any services you pay to manage your marketing or generate content. If your marketing costs vary, use last year's annual total and divide by 12 to calculate an average monthly cost.
Office expenses and supplies
How much do you spend each month on office expenses and supplies? This budget category can include items and services such as:
- Paper, pens, notebooks, and other supplies
- Printers, phones, and fax machines
- Ink/toner
- Postage and shipping
If you have a home office, you may be able to deduct a portion of your mortgage payment, rent, or even utilities when paying your taxes.
Business meals
Business owners can also create a food budget category for their business. This includes business meals and other food expenses you incur. Consider such needs as:
- Meals for you and your employees when traveling
- Meals with clients
- Supplying food for company events
Remember, while the IRS allowed you to deduct the total cost of business meals in 2021 and 2022, business meals are only 50% deductible for all other years.
Benefits
You may be tempted to roll payroll and benefits into the same budget category, but they should ideally be featured as different expenses on your budget categories list.
That's especially true when you have part-time workers who aren't eligible for the benefits you provide your full-time employees, such as health insurance and retirement account contributions.
Don't forget that all employers are legally required to pay their employees' Social Security and Medicare contributions.
You may also include additional benefits for your workers, including tuition reimbursement, educational opportunities, or supplemental insurance plans to reduce health care costs. List these expenses in your "benefits" budget category, another of your fixed expenses.
Payroll: Salaries and wages
Most small business owners discover that payroll is one of their largest budget categories. You'll need to account for:
- Full-time salaries
- Part-time wages
- Contract labor
- Seasonal workers
While full-time employees are a fixed category, accounting for seasonal or contract labor can be more challenging. Use your figures from previous years and divide by 12 to determine how it works on your average monthly budget.
Education and training
Education and training can be an investment for you and your employees. For example, you might invest in additional education in the form of:
- Webinars
- Industry events
- Subscriptions to industry publications
Many small business owners find they can improve employee engagement by providing professional development and other learning opportunities. These expenses are in addition to your standard employee training and onboarding costs. These expenses can be rolled into your education and training budget category.
Travel expenses
Does your business require a lot of travel? If so, your budget categories should include expenses such as:
- Mileage
- Tolls
- Airfare
- Lodging
- Entertainment expenses
Don't include food and groceries in this category and your "meals" above—put them in one or the other. You can also include an entertainment category for activities on longer trips, but be aware that you can't deduct any entertainment expenses from your tax return.
Vehicle expenses
Businesses with commercial vehicles should account for the cost of these vehicles, including:
- Auto loans
- Gas
- Regular maintenance (e.g., oil changes)
- Tires
- Licensing and registration fees
- Inspections
- Garage rent
Keep the commercial auto insurance premiums in this category and separate from your other insurance costs. Even if you drive a personal car for business purposes, you can still keep track of gas and other expenses you incur during business travel.
Business fees
Most small businesses are subject to various business fees, which can vary depending on the business model. Some common examples of business fees include:
- Bank and credit card merchant fees
- Legal and professional fees
- Business licensing
- Third-party logistics support
- Outsourcing fees for professional services
This might be something of a catch-all for fees that don't fall into your other budgeting categories and can help you better allocate your monthly income.
Rent
Some small business owners may be renting commercial space, including:
- Retail space
- Office space
- Inventory storage/warehousing space
You'll need to budget for monthly rent payments and any payments to a third-party warehousing provider or logistics partner.
Taxes and licenses
Business owners will be responsible for paying for business licenses, especially when selling commonly-regulated items like tobacco products or fireworks. Additionally, you'll be responsible for taxes, including:
- Business income tax
- Property taxes on real estate and equipment
- Self-employment tax
You may also be subject to capital gains taxes when selling a business asset or investment, though these taxes are uncommon and won't be part of your regular budget categories.
Computer hardware and software
Entrepreneurs rely on technology to drive their business forward. This can include:
- Computer hardware
- Point of sale equipment
- Business software (accounting, inventory, project management, etc.)
Even your budgeting apps should be accounted for in this category, including the subscription fees you use to maintain your software systems.
Maintenance and repairs
While some business owners maintain a small emergency fund, budgeting for maintenance and repairs is equally wise. The size of this budget will depend on the extent of your business, the age and type of equipment, and whether you own your real estate space.
Dues
Dues commonly refer to membership in professional organizations. Not every business will have these expenses, but membership dues can be valuable in helping you grow and scale your business.
Interest and depreciation
Interest payments will also be included in your monthly expenses. This includes any interest you pay on business loans and other debts, including your business credit card.
Interest on equipment or vehicle loans will usually be included in the cost of the items themselves. However, you can still account for depreciation of your equipment in this budget category. The IRS also allows you to deduct depreciation of your business assets from your annual return, which can also help you save money for your business.
How to divide your budget into categories
If you don't already have a budgeting method for your small business, now's the time to start. Dividing your budget into these simple budget categories is a good start, and you can even use a budget spreadsheet to organize your list. Here are some tips for getting started.
Examine your monthly revenue
Start by looking at how much money you're bringing in each month. At this point, focus on your revenue—not profit—since you'll be accounting for monthly expenses in the next steps. Knowing your revenue will help you understand how much money you must allocate to your business expenses.
Divide your budget categories into fixed and flexible expenses
You might start by dividing your budget into two broad categories. These include your fixed expenses (costs that stay the same each month) and variable/flexible expenses (costs that vary from month to month).
For instance, rent and utilities are generally fixed costs, while inventory and supplies vary. From there, you can further divide your list using the categories listed above.
Set aside an emergency fund
Just as in your personal finance, it's essential to set aside an emergency fund to cover unexpected expenses in your business. The general rule is to have three to six months' worth of expenses saved, though the exact amount varies by business type.
Pay down high-interest debt
Cash flow is vital to the health of any business. Make a debt repayment plan that enables you to break free of debt and interest payments.
Minimum payments aren't usually enough to eliminate debt, which is why it helps temporarily divert a portion of your monthly income to pay off these loans. This will give you more to work with in other business areas.
Categorizing with business budget management software
The right software makes all the difference. While a budgeting app might help the average family with their personal expenses, business leaders should invest in a robust platform that enables them to take charge of their financial plan.
BILL provides an innovative solution to help you set budgets and establish controls over how you spend money. Partner with BILL today to have more control over your finances.
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Business budget categories FAQ
How many categories should you have in your budget?
The exact number of budget categories you have is up to you and may vary by industry. However, you should at least aim to divide your budget into fixed and variable expenses to give visibility on costs that change and costs that stay the same each month.
What categories should be in a budget?
Your budget categories should include the expenses most common to your business. This can include office expenses, business equipment, software, payroll, and taxes and licensing.
How do I budget for taxes?
Taxes should be part of your budget, including income taxes, payroll taxes, and property taxes. If you're unsure how to do this monthly, simply divide last year's tax data by 12.