Do you have business expenses that feel like a sneaky little toddler? I now have an 11-month-old and a two-and-a-half-year-old, and they are both simultaneously working together to destroy my house. It amazes me how I can leave the room for just one minute—maybe to send a quick email or switch over the laundry—and when I come back, I can’t find them. That’s when I know something suspicious is going on, and I wonder, What are you sneaking into now? We’re going to use this to answer the question: What does your business cost?
Sometimes, I talk to business owners who feel the same way about their expenses. They’re reacting to them instead of being proactive, constantly getting caught off guard by charges they forgot about or didn’t expect that month. What I want to help you realize is this: knowing your expenses can actually help you make smarter decisions—like how to price your services or products—and it directly impacts how much you pay yourself. And let’s be honest, I’m not in business just to donate my time and services. I’m here to make money so I can support my family and have a greater impact.
That’s why I’m so excited to bring you this four-part series. Today, we’re diving into the question: How much does your business really cost? I’m also introducing a new tool I can’t wait to share with you. It is something that will help you break down and apply the practical pieces we talk about. So let’s jump in.
Why do you even need to understand the costs or expenses in your business?
Isn’t that pretty straightforward? Often, I see business owners who think they have a general idea, but they don’t actually know their exact numbers. And this can seriously impact your stress levels. Like I said before, when you’re reacting instead of being proactive, it’s easy to feel overwhelmed and caught off guard by unexpected expenses.
Not understanding your expenses can also lead to cash flow issues. When I use the term “cash flow,” I’m referring to the actual cash that’s coming in and out of your business—literally flowing in and out of your bank account. When unexpected charges pop up, it can cause serious stress and problems, especially when you don’t have enough cash in the bank to cover them.
This also directly impacts how you price your products and services. And that’s something many business owners forget. It’s easy to listen to trainings that encourage you to price your services based on what “feels good” or what you feel confident charging. That is important. But you also need to make sure your pricing covers your expenses at a minimum and still leaves enough left over to pay yourself. That’s exactly why I’m doing this series: to dive deeper into some of the pieces you may be missing. And the first step is understanding your expenses.
If you’re thinking, Erika, I’m not sure if my pricing covers my costs, my paycheck, or what else I might be missing, then you’ll want to grab my new tool: Take Home Target. It will quickly and easily help you calculate what you need to cover expenses, pay yourself, and stop staring at the balance in your bank account unsure of what you can actually do with it.
Now, let’s talk about what exactly you’re going to track to find out how much your business costs.
To find out how much your business cost, you first need a list of your monthly expenses.
Here, we’re focusing on recurring expenses—those that happen every single month and are usually about the same amount. This includes things like your CRM, email software, website hosting, marketing tools, insurance, internet, contractors, and other predictable costs.
Make a list of all of these expenses, along with the date they draft from your account. This is key. It helps you manage your cash flow by allowing you to predict when money is coming in and when it’s going out. Once you have this information, you can make smarter decisions. For example, how much buffer to keep in your bank account at different times of the month? You may even notice that your biggest expenses hit at the beginning of the month, which can help you plan accordingly and avoid surprises.
Once you have your list of monthly expenses, you might be able to adjust some things. For example, some of my clients choose to shift when they pay their contractors or even themselves, so they’re not draining all the cash from their bank account at the beginning of the month. Instead, they spread out the payments to create a smoother flow. These are exactly the kinds of strategic decisions you can make once you clearly see your expenses in front of you.
And like we’ve mentioned before, having this list is also a great opportunity to step back and ask: Do I actually need all of this? Is each expense giving you a return on your investment? Is it useful? Could there be a more affordable or more effective option out there? You might even consider switching some of these to annual payments instead of monthly to save money. But you can’t make those decisions if everything is just floating around in your head. That’s when things start slipping through the cracks and catching you off guard.
The next step to find out what your business cost is is a little trickier because it’s easy to forget about these: your annual expenses.
These are things like your domain name renewal, business licenses, professional memberships, or subscriptions you pay for once a year. It might be things like Canva or certain software. I personally try to sign up for software annually to save a bit. But if I’m not tracking it, I’ll forget about that $300 charge in June… and it’s a bummer. That’s why it’s so important to include your annual expenses on your list as well.
Finally, you’ll want to think about any variable expenses—those that might fluctuate month to month.
These could include advertising or ad spend, professional development, or tools you invest in throughout the year. Anything that is a real expense in your business (not a wishlist item), even if it varies, should go on this list. Just estimate an average amount for the sake of this exercise.
If you’re having trouble coming up with these numbers, you can always go through your bank statement for a month and note what’s coming out. Or, if you’re using QuickBooks, pull up a monthly view of your profit and loss report to spot those recurring charges.
Understanding the expenses in your business is a critical step—but it’s not the only one. There are still a few more pieces we need to look at before we can figure out your true income goal and ultimately, how much you can afford to pay yourself.
Listen to this episode!
