Understanding your Business Revenue and Expenses | The Definitive SME Business Financing Guide 2018
Having proper accounting will enable you to check the health of your business. Hiring an accountant and adopting proper accounting software will ensure that you properly track your revenue streams as well as expenditure.
Let’s start with revenue. Typically, businesses have a core revenue stream. By accurately measuring the performance of each revenue stream, you will be able to identify and plan for revenue growth. As mentioned in the previous section of this guide, SMEs often encounter revenue issues such as delayed payments from customers. In your business planning, besides brainstorming on how to grow a certain revenue stream, you should also prepare a forecast for future revenue.
In general, businesses have two types of expenditures – capital expenditure (CAPEX) and operating expenditure. (OPEX) The main difference between these two expenditures is that in the case of CAPEX, these are expenditures incurred by the business for future use. In the case of OPEX, these expenditures are incurred by the business to ensure the business stays operational.
Here is a basic list of expenses a typical SME is expected to have:
Other assets purchases
Employee / Staff Costs (Salary and CPF contributions, Medical Expenses and Retrenchment benefits)
Utilities (Water, Electricity, Internet)
Repairs and maintenance cost
Upkeep of business premises, equipment and machinery
Cost of travelling on public transport
Research & Development Expenditure
Administrative fees, including business licencing
In every business, it is inevitable that the list of expenses is long and numerous. In addition, many businesses face unexpected expenses which makes it hard to project expenses accurately.
Unexpected business expenses are incurred when business encounter situations such as sudden change in consumer demand, equipment breakdowns and increase in the cost of supplies. These situations are unpredictable and can occur regardless of the nature of your business.
To prepare for such situations, many businesses set aside a “rainy-day” fund. A rainy day fund is an emergency fund that helps to cover any short-term unpredicted business expenses. For businesses who do not have such a practice, you may want to consider getting a business loan.