Starting and building your own business can be fulfilling and life-changing, but doing business involves various expenses. Knowing the common small business expenses and ways to reduce these can help you prepare and budget well.

Business expenses refer to all costs related to running your business, which includes fees for registering your business, permits, tax dues, salaries, and other operating expenses. Depending on your business, you may also have production or manufacturing costs.

These expenses seem intimidating for a new business owner. But don’t worry; there are also many ways you can reduce expenses and save money! You can start by hiring more strategically, maximizing tax deductions, utilizing technology, and more.

This guide explains the most common business expenses to expect as an entrepreneur and how to cut costs.

Many expenses come with having a business. The key is knowing what those expenses are and being financially ready. Here are some of the most common business expenses you should prepare for as a business owner:

How you register your business depends on the business entity you have. The most common ones are sole proprietorship, partnership, and corporation. Each has advantages and disadvantages, so you need to know the correct business entity for you.

You must register your business with the Department of Trade and Industry (DTI) for sole proprietorships.

The cost to register your business name with DTI ranges from ₱200 to ₱2,000, with an additional ₱30 for documentary stamp tax, depending on the scope or coverage of your business. Your area could be at the barangay, municipal, city, regional, or national levels.

Also, remember to pay your DTI registration fee on time to avoid a 50% additional surcharge. This registration is valid for five years unless you update your business information.

Register your business with the Securities and Exchange Commission (SEC) if you own a partnership or corporation.

Fortunately, you can easily register your business and find out how much your fees are online. SEC registration is valid for two years, and the cost depends on your entity and how much capital you will declare.

After registering your business with either the DTI or SEC, the next step is to register with the Bureau of Internal Revenue (BIR) to be able to pay proper taxes. Do this through your nearest Revenue District Office (RDO) or the BIR online portal.

The BIR registration fee costs ₱500, and the loose documentary stamp tax (DST) costs ₱30. Also note that you should pay your BIR registration fee annually, which is due on January 31st of every year.

Depending on the type of business and location, you may also need to comply with your local government unit (LGU) for other business permits, such as barangay clearance and mayor’s permit. These permits also come with their fees.

Additional requirements include a sanitary permit, fire permit, garbage fee, zoning clearance, community tax certificate, and more.

No matter what kind of business you own, you are required to file and pay your taxes. The type of taxes you pay depends on your business and can include quarterly and annual income taxes, percentage tax, value-added tax (VAT), and withholding taxes.

Those who are self-employed or have small businesses grossing below ₱3M may opt to avail of the graduated income tax (GIT) rates or an 8% rate on income exceeding ₱250,000 as their tax scheme.

Choosing the GIT rates also means paying percentage taxes worth 3% of your gross receipts. Meanwhile, if your gross sales exceed ₱3M, you must pay a 12% VAT on top of your income tax, which follows the GIT rates.

Corporations also pay corporate income tax worth 20%-25% of the net taxable income and a 12% VAT upon meeting the ₱3M threshold.

As an employer, surrender any taxes withheld from your employees to the BIR. Similarly, you should present your withholding tax certificate or BIR Form 2306 to account for any taxes already withheld.

On top of all these, other tax dues may apply to your small business, such as local government taxes, fringe benefits tax, capital gains tax, excise tax, and more.

When complying with taxes, there are many things to consider, such as what forms you should file or choosing how to be taxed. Taxes are crucial but can also get confusing, so we recommend consulting tax professionals to ensure your business stays compliant.

If the business has a physical office, utilities such as electricity, water, and communications are part of your business expenses.

The amount you pay for your electricity and water depends on your usage, how many employees you have, and the equipment you use.

You also typically pay for internet and telephone services on a monthly subscription plan, the price of which also depends on the speed, coverage, and provider of the service you availed.

Depending on the stage of your business, you might need to hire employees to make your operations more efficient. Hiring employees also come with a cost starting from expenses during the recruitment period and the costs of retaining them with their salaries.

You must also provide your employees with government-mandated benefits such as PhilHealth, SSS, and PAG-IBIG, which are additional expenses to your business.

On top of that, there are also costs to training and developing your employees to ensure that their talents and skills will be helpful in the business.

Having a physical operation for your business means you need an office space. Most small business owners opt to rent an area, which means they have rental costs to add to their business expenses.

Depending on the landlord, you may also have to pay a deposit and advance, which could be a large amount of money.

Building improvements and maintenance costs are additional expenses to ensure the space is a conducive working environment.

Another cost of office space is providing equipment for your employees, including tables, chairs, printers, computers, projectors, and more.

If you have a kitchen, you might also need electric kettles, a coffee maker, a small refrigerator, and the like. Some landlords already furnish office spaces with equipment, which is a relief for your business.

Nonetheless, you may need to shoulder all your equipment's maintenance or repair costs to ensure they stay in top condition.

Budget for basic supplies in your office, such as papers, pens, folders, staplers, clips, etc.

Opt to stock up on office snacks your employees can munch on or even recreational games. Additions like these can keep employees happy and relaxed, increasing employee satisfaction.

On top of these, you will also need to spend money on technology and licenses like Microsoft Office licenses for essential office work. Depending on the nature of your business, you may need additional specialized software to run your business.

Transportation and travel costs are also inevitable expenses when doing business. You usually incur these whenever you need to move around or travel to meet your partners, suppliers, and customers.

Transportation costs include fuel and parking fees if you drive a car. Commuting or using ride-hailing apps can be cheaper, but you will still need to pay for the fares.

Sometimes, you may also need to book flights for longer-distance travel.

Every business needs an effective marketing and sales strategy to continue growing. However, this also comes with a price.

Running your ads and campaigns, even online, can cost you money. Printing out marketing materials like posters, tarpaulins, flyers, and business cards also costs money.

Offering commissions is another cost to consider to encourage your sales teams or agents to meet their targets.

Marketing and sales are necessary expenses for business because it also helps you reach your target market and make more revenue in return.

As much as a business has many expenses, there are also many ways to cut costs. By reducing your expenses, you can free up your resources and use them to improve your business. It also helps manage the cash flow to ensure your business can operate quickly and in the long term.

Watch this video to guide you through cash flow management:

Here are some ways you can do to cut costs in the different areas of your business:

One thing that businesses always spend on is taxes. The good news is you lower tax liability by taking advantage of tax deductions.

Tax deductions help reduce your taxable income. Most business expenses, such as utility bills, travel costs, representation expenses, and more, can be used to lower your taxes.

Aside from tax deductions, changing how you are taxed can do wonders for your business.

For example, paying the graduated income rate allows you to use deductions. However, if you don’t have that many expenses, you can choose the 8% tax rate to save money.

If you’re unsure how to lower your tax dues further, you can consult professionals so they can give you advice specific to your business situation.

Most employees prefer remote work now, and it can save you a lot of money, making this a win-win situation.

Switching to a fully remote setup eliminates or lessens utility bills, rent, and other expenses since a physical office is no longer needed. You won’t need office supplies because you will mainly rely on cloud solutions for your files.

Another option is to implement a hybrid setup that allows employees to work at home and report to the office occasionally. This setup enables businesses to rent a smaller office space, pay lower utility bills, and reduce maintenance costs.

Sometimes, small business owners delay hiring as much as possible to save on costs. But once your business grows to a certain point, hiring will be essential to keep your business efficient and running.

Once you do, you must assess and place your employees in the right roles. Misaligning your employees’ skills with their tasks can cost you more money if they turn out to be inefficient or when they make crucial mistakes.

If you want to hire star talent but don’t have enough cash flow, you can also try offering equity on top of their salary to attract these candidates.

Outsourcing is another way to fill in gaps in your business without spending a lot.

Hire a graphic designer as an independent contractor when specialized graphics are only needed occasionally.

You can also outsource specialized business functions such as tax and bookkeeping to trusted professionals. This way, you’ll be assured that your business remains compliant and on top of your crucial tasks without needing another full-time employee.

Outsourcing will also save you money from training your employees since the contractors you’ll hire already specialize in the business area you need help with.

For some types of businesses, renting equipment might be better than purchasing them at the early stages of your business. For example, construction businesses initially rent trucks and other heavy machines for their first projects.

Renting is helpful if you don’t have significant capital yet to buy your equipment but are already ready to offer your services. To ensure this strategy works for you, you can compare renting and ownership costs. Likewise, you can check how long you should rent before it becomes economical for you to buy the equipment.

Using technology to automate your processes is an investment that would save you money in the long run. Opt to automate invoicing, payroll processing, content management, emails, and other repetitive tasks.

Go paperless and switch to cloud storage to save on office supplies. Moreover, hold meetings virtually to lessen travel expenses.

Another way to save money is to check your marketing strategies and evaluate which ones work. Review key performance indicators (KPIs) like lifetime value, customer acquisition cost, and conversion rate to assess strategies.

Upon review, start scrapping or fixing strategies that are not performing well and focus your resources on those that work.

Take advantage of free marketing tools like social media. Even when you don’t always run ads, having an active presence can help your business.

Additionally, utilize marketing tactics such as referral programs, building an email list, and giving away coupons to attract customers to your business.

An advantage of using credit cards or apps aside from building good credit is getting perks for actively using them. Who doesn’t love free stuff, anyway?

Having a separate credit card for business is a good practice for your bookkeeping and lets you earn points and claim rewards. Some credit cards also allow cash back or accumulated travel miles.

Online credit apps like Plentina give you access to multiple vouchers from businesses like Grab and Philippine Airlines to save on travel expenses.

One of the ways you can strategically cut costs in your business is by partnering with experts who can help you do a clean sweep of your business processes. They can give insights on effectively managing expenses to ensure you have the cash to run your small business operations.

With OneCFO, we can help you manage your finance functions, review your business finances, and provide CFO-level advice, so you can make sure that every penny you have is put to good use.

On top of that, we also have a team of experts that can help you make your payroll and tax management much more manageable.

Subscribe to OneCFO services to achieve world-class finance capabilities without breaking the bank.

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