Monitoring the Health of Your Small Business: Expense Trends Analysis

Matt Tidwell

Managing expenses is a critical part of maintaining the financial health of your small business. While revenue brings in cash, how you manage and monitor expenses determines your bottom line and overall sustainability.

This article explores the importance of expense trend analysis and how it can help you keep your business on the right track.

What Is Expense Trends Analysis?

Expense trends analysis means looking at how your business costs change over time. There are different kinds of expenses, like:

  • Fixed expenses: Costs that stay the same, like rent and insurance.
  • Variable expenses: Costs that change based on your sales and production.

Tracking these expenses helps you see not just how much you’re spending, but also how these costs are changing. This helps you make smart decisions for your business.


Why You Should Track Expenses

To make a profit, your revenue needs to be higher than your expenses. If you don’t monitor your expenses, you might miss signs that something is wrong. Here’s why tracking expenses is important:

  • Catch problems early: Spot issues before they hurt your business.
  • Understand what’s causing costs: Know why your expenses are changing.
  • Make informed decisions: Use this information to plan and budget.

Tools for Tracking Expenses

The tools you use depend on your type of business. Here are some options:

  • Manufacturing businesses: Use software to track the whole supply chain.
  • Restaurants: Use point-of-sale systems to monitor expenses.
  • Small businesses: General accounting software like QuickBooks can help.

These tools make it easier to track your expenses and keep your finances in check.

 

Why Expense Analysis Matters When Applying for Loans

If you need a loan, lenders will look at how you manage your expenses. They want to see that your business is profitable and sustainable. Here’s why expense analysis is important:

  • Show financial control: Prove that you can manage your business’s money well.
  • Build lender confidence: Show that your business is financially stable.


Watch for Expense Spikes

Sometimes, expenses can suddenly increase. It’s important to track these changes closely and understand why they happened. For example:

  • Salary increases: Know why payroll costs went up.
  • Unexpected costs: Be ready to explain any big changes.

Keeping an eye on these spikes helps you avoid surprises and keep your business running smoothly.

 

Key Takeaways: Your Expenses Tell Your Business’s Story

Your expenses show how healthy your business is. Tracking and analyzing expense trends can keep your business profitable and ready for the future. This helps you manage day-to-day operations and strengthens your case when applying for loans.