What are they?
Expense health shows you the portion of expenses that your business incurs that generate revenue, versus those which don’t (known as discretionary expenses). The goal is to have a majority of your expenses as revenue generating.
Why are they important?
While you can run a profitable business with high discretionary spending, you can certainly help your cash flow by reducing it.
What type of expenses are considered revenue generating?
- Cost of materials and supplies
- Salaries / wages
What type of expenses are considered discretionary?
How are they calculated?
We look at the total pool of your expenses and simply calculate what portion are revenue generating versus those which are discretionary.
$5K rent (revenue generating – good expenses)
$10K wages (revenue generating – good expenses)
$5K MCG Corporate Box (discretionary – “not so good” expenses)
Total expenses $20K, Total good expenses $15K, Total “not so good” expenses $5K
Good expense health = 15K / 20K = 75%
Discretionary spending = 5K / 20K = 25%
Whats considered good expense health? And not so good expense health?