Business expenses are the criteria to refer to all kinds of expenses used in business activities. In this article, Sapo.vn will help you clarify the concept of business costs and the important factors to optimize costs in the most effective way.
1. What are business expenses?
Business expenses of an enterprise are understood as all costs of production and consumption of products and indirect taxes that enterprises need to spend to carry out business activities in a certain period.
In addition, business costs are also expressed in the definition as the monetary expression of the costs of material, labor and other monetary costs related, directly or indirectly serving the business process. business of the enterprise during a certain period. Along with that, it is compensated from the business revenue of the enterprise in that period.
2. Composition of business expenses
2.1 Business operating expenses
Business operating expenses will include: Cost of selling and providing services; Financial operating expenses.
* Operating expenses for sales and service provision
This cost is the monetary expression of all expenses that an enterprise spends to carry out the task of buying and selling goods, producing as well as consuming products and providing services in a certain period of time, including: cost of goods sold, selling expenses and administrative expenses.
Cost of goods sold is the actual purchase price of goods sold during the period. For manufacturing enterprises, cost of goods sold is the production cost of products, including:
- The cost of materials directly: Actual value of raw materials and materials used directly in the production of products of the enterprise.
- Direct labor costs: This is the salary, wages, salary allowances as well as salary deductions payable to direct production workers.
- General production costs: These are general fees incurred in workshops or business divisions such as depreciation of fixed assets belonging to the workshop, wages, salary allowances of workshop management staff, outsourced service costs and other monetary expenses. in the workshop or sales department.
For a commercial enterprise, the cost of goods sold includes the purchase price of the goods sold and the purchase costs allocated to the goods sold.
Selling expenses: Are expenses directly related to the consumption of products, goods and provision of services such as salary costs, salary allowances of sales staff, marketing staff, transportation costs, loading and unloading of goods. sale, depreciation expense of fixed assets used for sale, commission agent,…
Enterprise Cost Management: Is an expense of general administrative nature of the enterprise, which cannot be separated for each specific object such as reception fee, ceremony fee, depreciation of fixed assets used for management, labor productivity bonus, etc. scientific research costs, improvement initiatives, educational support expenses, outsourced service costs and other monetary expenses in the management department,…
* Financial operating expenses
Expenses for financial investment with the purpose of rational use of capital, increasing income for enterprises, including:
- Expenses incurred in connection with joint venture and association activities such as costs of transporting assets to contribute capital, expenses for joint venture meetings, losses in joint ventures, etc.
- Rental costs, including depreciation of leased fixed assets (except financial leasing);
- Expenses incurred in the process of selling securities, losses in investment;
- Provision for devaluation of securities investment;
- Loss on foreign exchange rate difference and foreign currency sale;
- Payment discount to the buyer;
- Loan and borrowing costs;
- Expenses for financial activities other than those mentioned above
2.2 Other expenses
These are infrequent expenses that arise as a result of events or transactions that are separate from the revenue-generating activity. This cost includes:
- Expenses for liquidation and sale of fixed assets including residual value of liquidated or sold fixed assets (if any);
- Fines for breach of economic contracts and expenses for collecting fines for breach of economic contracts;
- Loss value of assets after compensating with financial reserve fund and compensations;
- Expenses for debt recovery written off;
- Other expenses are operating expenses other than those mentioned above.
Operating expenses account for the largest proportion of total business expenses. In operating expenses, costs of selling and providing services account for the largest and most important proportion, directly affecting the final business results of the enterprise.
See also: What is the cost of production? How to allocate production and business costs correctly?
3. Solutions to optimize business costs
3.1 Optimizing Marketing costs
Marketing advertising campaigns are an essential element for every business to be able to generate profits and bring quick results. However, if you are too focused on paid advertising campaigns and do not optimize it, then it is not the right solution.
To optimize marketing costs, you can completely expand other marketing channels such as implementing SEO, social media,… instead of focusing too much on outsourcing marketing costs.
Optimizing conversions is also a way to help you optimize marketing costs. At this time, CAC – the cost to acquire 1 customer will be optimized and help businesses reduce costs effectively.
3.2 Application of technology in management and business
It can be said that technology is one of the important factors to help optimize management costs, personnel costs and especially minimize errors in the business process. In fact, the cost for management software, printers, scanners, etc. is not too expensive but brings relatively good management efficiency. Therefore, this is an investment that businesses should consider to optimize other types of costs.
3.3 Optimizing financial costs
To optimize this cost, businesses need to carefully evaluate insurance policies as well as loans to ensure that you can eliminate unnecessary expense clauses. Compare providers to find the most competitive premium rates, then choose a service provider or negotiate a fee.
3.4 Optimizing employee skills
It can be said that the performance of employees greatly affects the work efficiency and costs of the enterprise. The cost here can be understood as the cost of personnel, the cost to pay for the loss due to errors in the working process.
Try to evaluate each employee’s ability to work and make sure to assign tasks that are appropriate for each individual to bring about the best work efficiency. This not only helps employees understand their roles and responsibilities to the best of their ability, but also ensures the operational efficiency of the business.
3.5 Always keep an eye on your business budget
Tracking budget and business expenses is an important factor to be able to evaluate and come up with a plan to cut and optimize business costs. This is also the basis for businesses to make smart financial decisions as well as clearly shape the cash flow of the business.
See also: What is cash flow management? How to effectively manage cash flow in business
Above are the important factors of business management costs that Sapo would like to share with you. We hope that the above sharing can help you understand what business costs are and what is the most effective way to optimize business costs.