Money Management Strategy
Expenses And Working Capital
WHAT ARE EXPENSES?
Expenses are the costs associated with conducting business operations and managing administrative tasks. They are recorded in the Profit & Loss Statement and may include non-cash items such as depreciation, which represents the gradual reduction in the value of fixed assets over their useful life. These expenditures play a crucial role in reflecting the financial performance of a business.
Non-Recurring Expenses
Non-recurring expenses refer to one-time costs incurred during the establishment or development of a business. These expenses are not part of the regular operational costs and are typically associated with setup, infrastructure, and promotional activities.
Costs Related to Setting Up a Business Entity:
- Business/LLP/Company registration
- Professional fees
- Other registrations
Costs Related to Establishing a Business Premise/Location:
- Rental deposits
- Water and electricity deposits
- Telephone and internet installation and deposits
- Premise repairs
- Renovations
Costs Related to Fixed Assets and Business Equipment:
- Machinery
- Computers
- Furniture and fittings
- Motor vehicles
- Office equipment
Marketing and Promotion Expenses:
- Company profiles
- Product/service brochures
- Business cards
- Advertising materials
These expenses are critical during the initial stages of setting up a business and lay the foundation for smooth operations and brand visibility.
Operating Expenses and Working Capital
Operating expenses refer to the costs necessary to sustain the daily operations of your business, such as utilities, salaries, and supplies. On the other hand, working capital is utilized for driving business growth and expansion, covering needs like inventory purchases, marketing, or scaling operations.
The required amount for both operating expenses and working capital is determined by forecasting the income expected to be generated from your products or services over a specific period, such as 6 months or 1 year. Accurate forecasting helps ensure that your business remains financially stable while preparing for future growth opportunities.
Examples of the costs are:
- Stocks / Inventory
- Salary
- EPF and SOCSO (Know more about EPF. Please click the provided links for information.)
- Office/shop rental
- Water and electricity
- Telephone and internet bills
- Printing and stationery
- Office expenses
- Transportation
- Petrol, toll, and parking
- Repair and maintenance
- Monthly promotion
- Miscellaneous
Simulation Example:
ABC Enterprise, a startup specialising in the printing business, has prepared its 6-month Business Investment Cost or Budget as detailed below:
| Cost | RM | RM | ||
| Non-recurring expenses | 1. Setting up a business entity costs | |||
| – Business registration | 70 | |||
| – Training & seminar | 1000 | |||
| TOTAL | 1070 | |||
| 1. Setting up a business entity cost | ||||
| – Rental deposit | 2400 | |||
| – Water & electricity (utility) deposit | 200 | |||
| – Telephone & internet deposit | 200 | |||
| – Local authority license | 200 | |||
| TOTAL | 3000 | |||
| 3. Fixed assets and equipment for the business | ||||
| – Computer | 2000 | |||
| – Fax machine | 450 | |||
| – Printer machine | 3000 | |||
| – Equiptment machine | 2000 | |||
| – Furniture | 5000 | |||
| – Air conditioner | 1000 | |||
| – Renovation (**) | 10,000 | |||
| TOTAL | 23,450 | |||
| 4. Marketing & promotions | ||||
| – Promotion | 500 | |||
| TOTAL | 500 | |||
| Monthly | 6 Month Cost | |||
| Operating and working capital | – Salary | 3800 | 22,800 | |
| – KWSP & SOCSO | 532 | 3,192 | ||
| – Office rental | 1,200 | 7,200 | ||
| – Water & electricity | 200 | 1,200 | ||
| – Telephone & internet | 150 | 900 | ||
| – Printing & stationery | 100 | 600 | ||
| – Transportation | 150 | 900 | ||
| – Petrol, toll & parking | 120 | 720 | ||
| – Repair & maintenance | 300 | 1,800 | ||
| – Miscellaneous | 150 | 900 | ||
| TOTAL | 6,702 | 40,212 | ||
| Beginning stocks | 6,000 | 6,000 | ||
| Total Business Investment Cost | 40,722 | 74,232 | ||
| Cost | RM | RM | ||
| Non-recurring expenses | 1. Setting up business entity cost | |||
| – Business registration | 70 | |||
| – Training & seminar | 1000 | |||
| TOTAL | 1070 | |||
| 1. Setting up a business entity cost | ||||
| – Rental deposit | 2400 | |||
| – Water & electricity (utility) deposit | 200 | |||
| – Telephone & internet deposit | 200 | |||
| – Local authority license | 200 | |||
| TOTAL | 3000 | |||
| 3. Fixed assets and equipment for the business | ||||
| – Computer | 2000 | |||
| – Fax machine | 450 | |||
| – Printer machine | 3000 | |||
| – Equiptment machine | 2000 | |||
| – Furniture | 5000 | |||
| – Air conditioner | 1000 | |||
| – Renovation (**) | 10,000 | |||
| TOTAL | 23,450 | |||
| 4. Marketing & promotions | ||||
| – Promotion | 500 | |||
| TOTAL | 500 | |||
| Monthly | 6 Month Cost | |||
| Operating and working capital | – Salary | 3800 | 22,800 | |
| – KWSP & SOCSO | 532 | 3,192 | ||
| – Office rental | 1,200 | 7,200 | ||
| – Water & electricity | 200 | 1,200 | ||
| – Telephone & internet | 150 | 900 | ||
| – Printing & stationery | 100 | 600 | ||
| – Transportation | 150 | 900 | ||
| – Petrol, toll & parking | 120 | 720 | ||
| – Repair & maintenance | 300 | 1,800 | ||
| – Miscellaneous | 150 | 900 | ||
| TOTAL | 6,702 | 40,212 | ||
| Beginning stocks | 6,000 | 6,000 | ||
| Total Business Investment Cost | 40,722 | 74,232 | ||
The table shows that ABC Enterprise requires a total business investment of RM74,232, which accounts for the projected costs for the next six months.
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