Mastering Budget Categories for Better Financial Management

Effective budget management goes well beyond just looking at the bottom line. Understanding each category of expense gives you insight into how your employees are spending money and allows you to make projections about cash flow.

In turn, these insights enable you to make smarter business decisions, control costs, and allocate resources to maximize your profits.

What Are Business Budget Categories?

Business budget categories divide expenses into different groups to make it easier to track in accounting systems. There are two basic categories:

• Operating expenses (OpEx): Day-to-day operating expenses
• Capital expenses (CapEx): Long-term investments in assets

Businesses also have to manage both fixed and variable costs:

• Fixed Costs: Remain constant, such as rent and salaries.
• Variable Costs: Fluctuate with business activity, like commissions and materials.

When you structure your financial planning using these categories, you get a clearer picture of how you are spending your money. This makes forecasting and resource allocation easier especially when you are budgeting in uncertain times.

Why Are Budget Categories Important for a Company's Financial Health?

When you categorize budgets, you get greater financial transparency and control. It enables you to compare expenses and budget forecasts to ensure you are staying within your financial plan. You can also quickly see cost overruns, identify spending patterns, and find inefficiencies.

Budget categories help you overcome the biggest budget challenges for organizations and answer key questions about your business. However, the biggest advantage is planning. You can make sure your spending aligns with your long-term goals and that you have the cash flow and operating capital you need to manage your business.

Categorizing and budgeting produce the data you need for strategic decision-making, helping you to control costs and fund investments and innovations.

What Are the Main Categories of Operating Expenses?

Operating expenses directly affect your net income. They are deducted from your revenue to determine profit. So, higher costs chip away at your bottom line.

Let’s take a look at the biggest OpEx categories in a typical budget.

Payroll and Benefits

Examples: Salaries, wages, benefit costs, payroll taxes, health insurance, retirement contributions

For most businesses, payroll and benefits typically make up the biggest portion of operating expenses. They are critical for complying with labor laws and attracting/retaining employees.

Facilities

Examples: Rent, utilities, maintenance, mortgage payments, property taxes, security

These are generally fixed costs, although there may be variances in utilities and annual increases. Facilities often make up between 15% and 30% of business operating expenses.

Materials and Supplies

Examples: Raw materials, production supplies, office stationery, packaging materials

Materials and supplies are variable expenses that fluctuate based on customer demand and production levels.

Sales and Marketing

Examples: Advertising, social media campaigns, promotional events, branding materials, sponsorships

You need to spend money to make money. Sales and marketing expenses are the things you do to build your brand, market and advertise your products, and generate revenue.

Administrative Costs

Examples: HR functions, accounting services

Administrative costs include the overhead needed to run your business. They support your core business functions, but do not directly generate revenue. These often include compliance with regulatory requirements.

Travel and Representation

Examples: Airfare, hotel rooms, business meals, client meetings

While discretionary spending, travel and expense management are crucial to your business development strategy. T&E will vary greatly by industry.

Professional Services

Examples: Legal fees, consultants, auditing services, outsourced support

Professional services can include a wide range of sub-categories, but typically involve specific expertise that you do not have in-house or that is less expensive to outsource.

Technology

Examples: Software licenses, IT infrastructure, internet fees, cybersecurity tools

Technology today is more important than ever. Building and maintaining the infrastructure you need to support your business is mission-critical.

What Is CapEx?

Capital expenditures do not hit your income statement. Instead, they are capitalized on your balance sheet as long as they are fixed assets and have a useful life of at least a year. Some of the common types of expenses that can fall under this category of spending include:

• Building and building improvement
• Equipment and machinery
• Computers and servers
• Office furniture
• Company vehicles

CapEx costs are usually deducted in the year the expense happens and offset by a depreciation scale for several years depending on the type of asset and lifespan.

How Do SAP Concur Solutions Assist in Managing Business Expenses?

SAP Concur solutions help you track, report, and manage expenses more efficiently to give you greater control and insight into how you are spending your money.

Knowing Your Cash Flow

You can connect your expense data and reduce manual data entry. This saves time processing expense claims and, as they say, time is money. You get a comprehensive view of pending and approved expenses, helping you see a true picture of your cash flow.

Minimizing Risk

Importing data from corporate credit cards and travel suppliers eliminates the need to enter data manually to reduce errors and produce more current expense tracking. Expenses are also automatically compared with compliance regulations and internal policies, flagging non-compliant spend or expenses that exceed thresholds for further review.

Streamlining Your Workflow

Integrating SAP Concur solutions with your HR, CRM, ERP, and accounting systems produces a comprehensive look by bringing all of your spending data together in a single platform. This empowers employees to manage T&E quickly by importing expenses and capturing receipts via a mobile app.

Enabling Growth

SAP Concur is highly scalable, so as your business grows, the platform grows alongside you. Regular maintenance upgrades and new features are seamless and adapt to new regulations, changes in policies, and more.

Simplifying Reporting

By automating expense reporting, you get a consolidated overview and a look into each expense category. This is especially helpful for budget planning and tax preparation. For example, 54% of eligible VAT is typically left unclaimed — much of it from business travel. You can monitor your liabilities and boost your travel budget by reclaiming these tax dollars.

74% of businesses say that automated travel and expense solutions reduce the time spent on administrative tasks. An Analysys Mason Travel, Expense, and Vendor Invoice Management Study reports that SAP Concur solutions save finance and accounts payable teams an estimated 148 hours per week and produce $54,000 in annual savings.

To get more insights into T&E management, visit concur.com.