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How to manage business expenses like a CFO

How to manage business expenses like a CFO

Written by 
Mark Gervase
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Published: 
October 9, 2025
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How to manage business expenses like a CFO

Every business owner has 1-2 aspects of the business they love. And because of that, other parts they tend to ignore. Often, that ignored piece is managing their business expenses.

Do not worry, this is normal. We wrote this guide to help. You’ll learn to think about expenses differently and find small ways to increase your profitability—perhaps today.

Why trust us: Our CFO Services team advises 2,500+ companies, and we see $5 billion in small business transactions on our platform. We help agencies, consultancies, food and beverage startups, retailers, ecommerce companies, and others run with the utmost efficiency. Very often, the habits that got them to where they are won’t take them further. Something must change. Often, it’s the owner’s relationship to expenses. 

In this guide, we focus on managing your own expenses, not just cutting them. (Read our cost-cutting checklist here.)

What you’ll learn:

Why manage expenses, and not just cut?

Business expenses matter because every expense you pay is money you don’t keep. Yet you can’t cut out all expenses, or the business won’t run. That’s the tradeoff. You need to find a stable balance, and also use the expenses you do incur to lower your tax bill.

Every business has expenses. Yet no two businesses are the same. Two retailers who compete closely may have completely different cost structures. One may spend 3x as much on their packaging in proportion to revenue, and that’s okay. There’s no right or wrong. There are just decisions. Perhaps that retailer sees memorable packaging as a way to invest in growing a brand that will allow them to branch out of their physical location into an online coaching business. That expense is part of a larger strategy.

Though at the same time, if that retailer is spending 3x more and it has no effect on the customer’s loyalty, they should probably stop doing that. That’s what we mean by “manage” expenses—you should investigate all expenses to ensure they’re serving you and the mission. 

An offer to get a CFO to help build you the four basic reports

But wait—what exactly are expenses?

There are two major categories of expenses: general expenses and cost of goods sold (COGS), which is a subset of all expenses. If you have a bookkeeper (every business should), they code all your income and expense transactions each month based on carefully selected codes so you can view a useful breakdown.

You’ll want to treat these differently:

  • General expenses: These are all other expenses that occur whether or not you are selling and delivering. For example, rent and administrative wages. 
  • Cost of goods sold: These are expenses you incur as a result of selling or delivering your goods or services. For example, materials or contractor wages.
An image explaining the difference between general expenses and cost of goods sold

Cost of goods sold usually rises in proportion to how much you sell. If you’re an interior decorator, you only have to buy furniture when you have active projects. This is a good area to investigate: Can you manufacture, deliver, and support customers for less? It’s really a product and delivery question. Maybe spending 3x on your packaging makes sense—but it does cut into your cost of goods sold.

An image explaining the difference between good expenses and bad expenses

Whereas your general expenses exist no matter what. Those are the costs that keep the business and office running, from IT to shipping, legal fees, and advertising. A food business that decides to outsource their bookkeeping, for example, is managing its general expenses. They’re getting perhaps a better service while paying mere hundreds of dollars, not thousands. 

Again, it isn’t about pure cutting—it’s knowing what’s valuable to making the business run like it should.

How to track business expenses

Most small businesses track their expenses in QuickBooks or a tool like Pilot, which offers richer insights. Accountants call this software a “general ledger,” which means it’s the one source of truth for all income and expenses. When we talk about your bookkeeper categorizing expenses, they’re doing that in QuickBooks or Pilot.

An image explaining the three parts of a profit and loss statement

Know your business’ expense profile

Now let’s look at some numbers. Log into QuickBooks or Pilot and look at your profit and loss statement (in Pilot, your “books”). You’ll find a complete, categorized list of your income and expenses. This can tell you a lot. 

Run a few calculations:

  • Gross margin % = (Sales − COGS) / Sales
  • Net margin % = (Sales − COGS − General expenses) / Sales*
  • Sales efficiency = (Sales − Sales & Marketing) / Sales

With that, you know how much you make on sales after direct costs (gross margin), how much you keep after covering COGS and general expenses (operating margin), and how much of your sales remain after sales and marketing spend (sales efficiency).

What does it mean if your gross margin is 50%, net margin 30%, and sales efficiency 80%? That entirely depends on your business, which we explain next.

*By the way, this is really operating margin. True net margin would also subtract interest & taxes.

Are my expenses too high, too low, or just right?

The best rubric is to look at your own historical performance. Based on the last 12 months, are you improving? But for a general sense, you can also look at benchmarks from other businesses. Just because your numbers are higher doesn’t necessarily mean you’re doing something wrong—but it does suggest there are areas you could better manage expenses.

Some small businesses naturally have higher expenses:

  • Professional services companies have high labor costs.
  • Interior design businesses have high material and contractor costs.
  • Restaurants and cafes have high labor and high ingredient costs.
  • Bakeries have high upfront costs for appliances.

Whatever your highest expense category, that’s a competitive opportunity. If you can focus on finding efficiencies there, you make yourself more competitive in just the area your competitors aren’t. If you are a moving company that uses tubular webbing to allow fewer movers to carry more boxes safely, you can earn better margins. Or if you’re an interior designer and shift to projects where you consult only, and have fewer contractor costs, you improve your expense profile.

Part of the reason investors like software companies is that the offering is so cheap and repeatable. Each additional customer costs very little. You can run a software business at 80% gross margins. But this thinking isn’t limited to tech companies. Could your small business have a digital offering that is, similarly, a cash machine?

Different expenses move at different rates

Also consider that not all expenses are the same—you must look beyond the spreadsheet to the reality of what those numbers represent.

  • Perishable = goes bad quickly (baked goods, fresh produce) -> needs tight inventory control
  • Seasonal = loses value after a window (clothing, holiday decor) -> needs accurate forecasting
  • Durable = holds value longer (canned food, hardware, furniture) -> less urgent, but locks up cash until sold

You might think this means you should cut your cost of goods sold as much as possible, but that can create other problems. In the 1990s, the fad of “just in time production” led manufacturers to forecast precisely enough to only create exactly what they needed, and carry no inventory, but many learned the hard way: This only works if your forecasts are accurate. If you misestimate, it can overload your warehouse or create a terrible customer experience where people know you for always being out of stock. 

When analyzing expenses, consider the time factor.

Wherever you can, link expenses to income

If you have fast expenses and slow income, it can create real problems for your business. If you run a third-party logistics company, for example, and vendors want payments within 30 days (your expenses) but your customers wait 60 days to pay you (your income), you get stuck covering the “spread.” With enough transactions, that becomes a big risk. To cover that 30-day gap, you become everyone’s banker.

Any business that faces the “spread” must:

  1. Keep a 13-week cash flow forecast, updated weekly.
  2. Try to close the spread—delay payments and speed up billing.

This is an area where having a CFO can really help. Small business owners often feel like they have to invent everything from scratch. But most back-office processes have been done before, and you can save years of painful experimentation by hiring a fractional CFO to build you that forecast and model everyone else already uses. 

Talk to a Pilot CFO → 

What types of business expenses are there, and how can you reduce them? 

You’ve already learned about general expenses versus cost of goods sold, and to consider the speed of expenses. There are a few more factors:

  • General expenses versus cost of goods sold
  • Speed of expenses
  • Variable versus fixed
  • One-time versus recurring

It’s much easier to plan for and control expenses that are fixed and predictable, like the same internet bill every month, versus, say, paying for AI tools by usage. If one employee overdoes it, it can throw off your planning. You should also try to avoid recurring expenses, which can quietly add up.

How can I control my expenses?

First, look at how you deliver your product—your cost of goods sold. The best way to manage expenses there is to run a business that has naturally high margins.

There are some businesses where your customers pay you to make the product, which you can then resell. The data company Dun & Bradstreet (D&B) keeps a credit rating for businesses. On one side, businesses pay D&B to keep a profile on them. On the other side, companies pay D&B to run searches on other businesses. On one side, customers pay them to create a product, and on the other, they get to sell that product. 

Companies can achieve great economics in lots of ways. The online education company MarketingProfs allows people to host courses for free, but then charges people to take those courses, with a modest revenue share. According to public data, MarketingProfs generates $14 million in revenue each year with just a few dozen employees.  

Sometimes this is a business model you stumble upon, but more often than not, it starts with strategy and help from a CFO.

Managing business expenses is also just about experimentation. You can’t know all the places you might save until you try—and having run your business for 5-10 years can give you a lot of insight.

For example, a marketing agency might realize it’s actually losing money on copywriting projects because it pays its full-time writers every two weeks, but rarely gets copy projects. By switching those same individuals to contractors and paying them per project, the agency can stop the losses.

After examining your cost of goods sold, look at your general expenses. Which expenses are essential to your operation, and which are less so? If your business were a building, which walls and columns could you knock out without affecting the structure? Reduce expenses too far—knock down a load-bearing wall—and things can collapse. But also, sometimes you can run inexpensive tests to see. 

Trade down on essential expenses

  • Can full-time work be done by contractors without hurting quality? 
  • Can you trade down on ingredients / components without hurting quality? 
  • Can you more profitably accomplish something in-house? 
  • Can you pause a service for a month and see who misses it?

Cut down on nonessential expenses

  • Can you renegotiate utilities, phones, etc.?
  • Can you consolidate software or pay annually for a discount? 
  • Can you go fully paperless and eliminate paper, receipts, clips, and most office supplies? 
  • Can you consolidate vendors for a discount?

Budgeting is your best business expense tool

We’ve saved this tip for last because it sounds unexciting, but now you have enough context to know it is essential. A budget is a way to hold yourself and everyone accountable to a healthy level of predictable expenses. 

Budgeting is, in essence, saying, “We are only going to spend this much in each of the major categories.” You can give owners of parts of your business a budget that tells them their limits. 

Think of your budget as a map for your business journey. It’s more than just a list of numbers; it’s a reflection of your business plan.

Good budgeting advice:

Set clear financial objectives
Define what your business aims to achieve financially within a specific time frame. This could include revenue targets, profit margins, or cash flow objectives. 

Review historical data to set limits
If available, analyze past financial statements to understand trends, seasonality, and past performance. This keeps the budget realistic. 

Align the budget to the business structure 
Maybe goes without saying, but budget how you actually spend and think. Use the same terms. It should categorize revenue and expenses clearly so you can easily track and analyze.

Project revenue into the future
If your business is growing, budgeting is more complicated because you’ll have to make assumptions about how the income will grow, and so too will the budget. Pay attention to fixed and variable costs. Consider contingencies. Consider setting aside 10-20% of the total budget for assuming you’ll overspend in ways you can’t yet predict.

Have a CFO build your budget → 

Frequently asked questions (FAQ)

What can I claim as business expenses? 
As an owner managing business expenses for taxes, you can generally claim ordinary and necessary expenses incurred in running your business, such as the following list. Consult your tax advisor for specifics, as tax laws can change and some deductions may not apply to your situation.

  • Advertising & Marketing: Costs for promoting your business, including website, design, and ad spend
  • Salaries & Wages: Employee pay, including bonuses and benefits
  • Contract Labor: Payments to freelancers, writers, and designers
  • Office Expenses: Supplies, software subscriptions, and postage
  • Rent: Office space or coworking fees
  • Utilities: Internet, phone, and electricity for your business location
  • Professional Services: Fees for accountants, legal, and consulting services
  • Travel: Business-related travel, including airfare, lodging, and meals (subject to IRS limits)
  • Meals & Entertainment: 50% of business meal costs (entertainment is generally not deductible)
  • Insurance: Business liability, property, and health insurance premiums
  • Depreciation: Deduction for the cost of business assets over time (e.g., computers, furniture)
  • Education: Training, workshops, and industry conferences

How to write off business expenses for taxes?
To “write off” an expense can mean one of two things—the first and more ordinary method is that you claim it as a qualified business expense when doing your taxes. Your accountant will deduct the expense from your total revenue, and you won’t pay income taxes on it.

The other is to claim a tax credit. For example, if you developed a new scientific method, you could claim the R&D tax credit and “write off” the salaries, equipment, and materials involved in producing it. (This is rare for small businesses.)

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