Business expenses are a fact of life. Before you start your business you need to take some time and create a budget that lists your main business expenses and what you estimate each will cost per year.

The best way to do this is to use a cash flow planner. It will take you through planning for your business expenses and the cash that will be leaving your business 13 weeks at a time, or one quarter at a time. Let’s look at some of the common business expenses in detail:

Salary – by six to nine months down the road, you should be pulling in enough income to take a draw. This is a significant business expense at the start, even if you’re only taking out $400-$500 a week.

Employee benefits – another huge area of business expense. Search around to find out what people are paying right now. If you are still employed, try to find out what the total monthly premiums are. Remember to account for the fact that you might not get a group discount rate.

IRA – this is a business expense that many people forget about. You will want to retire, so make this or some other retirement vehicle a priority now.

Payroll taxes – this is a business expense that you should talk to your accountant about. He or she will be able to assist you better than any general guidelines.

Training and certification – typically you should factor in about $1,000 a year for this.

Dues and subscriptions – expect this business expense to come in at a little over $300 a quarter or $1200 a year.

Products purchased for internal use – here we’re talking about spare PC systems and parts. You are wise to budget this business expense at between $3,000 and $4,000 per year. The key here is to only purchase items that will bring you immediate ROI. If it doesn’t tie directly to billable hours, then it is a business expense you can’t afford right now.

Telephone and ISP expenses – budget for about $110 a month for a business phone plus an inexpensive DSL account.

Marketing and promotion – this will be a large business expense. Plan for $5,000 to $6,000 a year.

Commercial insurance – budget for $2,200 per year.

Transportation – a fair estimate is $30 per week.

Professional services – typical yearly totals are around $2000.

Corporate income taxes – this is another business expense that you need to discuss with your accountant.

Loan payments – these will be specific to your situation but need to be included in the budget.

The Bottom Line on Business Expenses

Business expenses will happen on a daily basis. To plan effectively you should use a cash flow planner or spreadsheet to keep track of your budgeted business expenses on a regular basis. Some expenses can be budgeted for based on common experience. The others will need to be discussed with your accountant or banker. There are a lot of variables, but the common factor is the need to budget carefully for your business expenses.

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One of the most basic and most important ways to build net worth, is to save more money each month. Increasing savings requires a budget.

A budget allows you to see where you are overspending and to take corrective action. The most important part of a budget is constant review and discipline!

Now it’s your turn to determine your budget. Having a written budget is very important as it prevents you from “cheating”. You can create a plain budget on a piece of paper, or you can create a spreadsheet to do all the calculation for you. In the resources below, a free budget spreadsheet is provided.

The basic budget should include a “Planned Budget” and “Actual Budget” (where you document what actually happened). As you consistently review your budget each month, you will discover ways to save even more money.

Here are some basic instructions for filling out a Budget Worksheet:

Fill out the first column on the spreadsheet labeled “Planned Budget”. This is your GOAL to achieve each month. This column will represent the amount of money you hope to spend in each of the given categories.

Fill out the “Actual Budget” as the month progresses. This will help you see where you are overspending.

Compare the Planned Budget to the Actual Budget at the end of each month. As you focus on saving money, you will surprised at the many different areas in which you can cut back your spending!

Also, note on the Budget Spreadsheet that some of your expenses are “Necessary” and others are “Discretionary”. Try to eliminate as many discretionary expenses FIRST, and then look to other categories to save even more.

You should continually assess where your budget is each month and you will notice your net worth increasing.

For a free budget calculator and a continuation of this article, see the resources below.