Expense Definition

An expense represents the costs incurred to generate revenue and maintain operations, reducing the overall profitability of the company.

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Today we’ll discuss the expense definition and what factors you should weigh when considering taking on a business expense. We’ll talk about synonyms for expense, the pros and cons of business expenses, and we’ll consider some examples as well.  

What is an Expense?

The definition of expense within the business context is the costs that the business owner incurs to operate the company. 

Expense Benefits

Expense benefits largely depend on the type of expense and whether it makes sense for your situation. After all, frivolous expenses aren’t going to do you or your company much good, so the benefits are few. But necessary expenses can have large benefits that can make or break your 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 you take on the expense of a well-thought-out marketing strategy, your business will likely get a boost in sales and revenue as a result. Buy the first marketing product you see, however, and it may be ineffective and ultimately be the equivalent of pouring money down the drain.

Business expense disadvantages include the fact that any expense can leave you with less cash on hand. And there’s always the risk that the expense doesn’t boost the business’s growth or profits. 

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Expense Considerations

Any time you make an investment in your business, it brings benefits and burdens. After all, take on too many expenses, and you’ll go out of business. Conversely, too few investments in your company can stunt your company’s growth. 

Now let’s discuss what things you need to keep in mind when deciding whether you should shell out money for a business expense. Here are some thoughts to get you started:

  • What is the expense for?
  • Have you put together a plan for how your company can benefit from the expense?
  • Have you researched alternatives for this type of expense?
  • If you aren’t the only business owner, have you sought the advice and permission of your partners or fellow owners?
  • If you have a corporation, expenses may need the consent of the shareholders or other people entitled to vote. Have you held a meeting and received the necessary consent?
  • Can you deduct the expense from this year’s taxes?
  • What kind of financial strain might the expense place on your business?

Look in your business’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 making a commitment to incurring an expense. 

Other Names for Expense

Now that we know the expense meaning, you may wonder how else you can refer to an expense. Other names for an expense include:

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

When you use any of these words, you’re usually talking about a business expense. Now let’s explore expense examples. 

Expense Examples

You know about the expense business definition and what to keep in mind when deciding when to take on an additional expense. What are some expense examples? They include 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 that your business makes for services or items that help run 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. Your business’s legal entity type determines who needs to vote and when. 

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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

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Written by Team ZenBusiness

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