Expense Definition

“Expense” is a very common term in the business sector. But what does it mean, and why does it matter? There are several factors that business owners should weigh when considering taking on business expenses. This guide covers all the essential facts about business expenses, including what they are, their pros and cons, and even some common examples of expenses.  

What is an expense?

Put simply, a business expense is any cost that a business owner incurs while operating the company. This could include utilities, supplies, employee salaries, and much more. 

Expense Benefits and Drawbacks

As counterintuitive as it sounds, expenses can actually benefit a business, but it depends on the type of expense in question and whether it makes sense for the company. After all, frivolous expenses don’t do much good. But necessary expenses can have large benefits that can make or break an enterprise.

Business expense advantages might include infusing more resources into the company. This can create positive momentum that increases profits and productivity. For example, if an entrepreneur takes on the expense of a well-thought-out marketing strategy, their business will likely get a boost in sales and revenue as a result. But if they buy the first marketing product they see, however, it may be ineffective, ultimately wasting money.

Naturally, there are disadvantages to expenses, namely that any expense can leave the company with less cash on hand. And there’s always the risk that the expense doesn’t boost the business’s growth or profits. 

Expense Considerations

An expense brings benefits and burdens any time the business owner decides to make an investment. If the owner takes on too many expenses, they’ll go out of business. Conversely, too few investments in the company can stunt its growth considerably.

There are several important questions a business owner should answer before shelling out money for a business expense:

• What is the expense for?
• Is there a plan in place that explains how the company can benefit from the expense?
• Has the business researched alternatives for this type of expense?
• If applicable, do fellow owners or business partners have any advice about the expense? Do they agree to it?
• If the business is a corporation, expenses may need the consent of the shareholders or other people entitled to vote. Has the company held a meeting and received the necessary consent?
• Can the business deduct the expense from this year’s taxes?
• What kind of financial strain might the expense place on the business?

A wise business owner will check their company’s bylaws (if it’s a corporation) or operating agreement (if it’s a limited liability company) to find out who needs to vote before committing to incurring an expense. 

Other Names for Expense

“Expense” is just one word used to describe these sorts of business costs. Other names for an expense include:

• Debt
• Debit
• Expenditure
• Cost
• Operating cost
• Money out
• Payment 
• Purchases 

Any of these words can be used to discuss a business expense.

Expense Examples

There are myriad examples of business expenses. Here are some common ones, including operating costs like:

• Marketing
• Technology
• Supplies
• Salaries
• Reimbursement for travel or other out-of-pocket expenses
• Rent
• Equipment
• Inventory 
• Bank charges
• Administrative filing fees

One type of expense that businesses pay is the formation fees. This includes the filing fee to form the business and file for annual reports. 

Summary: Expense Definition

Business expenses are payments made by a business for services or items that help run its operations. Expense examples are wages, office supplies, inventory costs, and marketing. Before taking on an expense, a business owner weighs the pros and cons and gets the necessary consent from other business associates. A business’s legal entity type determines who needs to vote and when. 

Recommended articles

• Budget Definition
• Best Practices for an Expense Report
• Business Expense vs. Capital Expenditure: What’s the Difference?
• What’s Hidden in Employee Expense Reports?
• Startup Costs Definition
• Fixed Costs Definition

ZenBusiness Can Help

Starting and running a business isn’t easy; that’s where ZenBusiness comes in. Their business formation services are a great resource for business owners who need help navigating startup steps. And for entrepreneurs who want to get their finances in order, ZenBusiness Money Pro is the perfect tool for tracking expenses and income in a streamlined app.