When it comes to running a business there are some areas where you have zero wiggle room: paying your invoices, your staff, and your taxes.
Now if you’ve had a strong quarter and are sitting on a healthy cash surplus, you might consider allocating funds towards discretionary expenses. This could include upgrading your software, improving your marketing efforts, or offering additional employee benefits—expenditures that, while not essential, can drive growth and improve long-term business performance.
Let’s take a look at what exactly is discretionary expenditure, some key examples, and how you can effectively manage it.
What is discretionary expenditure?
Discretionary expenses are costs that aren’t essential for keeping your business afloat.
They’re flexible expenses that can be adjusted, or removed entirely, without affecting your core operations. They often vary by department, such as marketing, HR, or sales ops, and include things like extra employee perks, business entertainment expenses, or mileage reimbursement.
…basically, it’s a fancy way of saying non-essential expenses.
What’s the difference between discretionary expenditure and non-discretionary expenditure?
It’s pretty simple, with discretionary spending you can be creative, open-minded, and even impulsive. With non-discretionary expenditure, not so much.
Examples of discretionary expenditure
As you know by now, discretionary expenditure is essentially spending that isn’t strictly necessary for your business to function.
If your business were a cupcake, then discretionary expenses are like the extra sprinkles that go on top– they make things sweeter, but aren’t essential.
Let’s take a look at some examples:
Marketing and advertising
Think of this as the cupcake’s frosting. It’s how you get people to notice and want to buy your products or services. This could include things like social media ads, TV commercials, or sponsoring events.
Employee perks
These are like the sprinkles on the frosting. They make work-life more enjoyable for your employees and can help attract and retain top talent. Examples include company outings, gym memberships, or offering flexible working.
Travel
This is like the cupcake’s base and it’s important for business growth. It could involve attending conferences, visiting clients, or expanding into new markets.
Employee training and development
Think of this as the cupcake’s filling, it makes the business stronger and more efficient. It could include sending your employees on courses, workshops, or webinars.
Office improvements
These are like upgrading the cupcake’s stand, they make your business look better and feel more professional. It could involve renovating the office, buying new furniture, or upgrading technology.
How to manage your discretionary expenditure
When you first start a business, every payment, every extra pound runs through the founder or the CEO, and they more or less know where the money is going. But as you take on more employees and grow, this is no longer possible.
As discretionary costs will always be different from one quarter to the next, it’s vital to have a clear system in place to keep track and manage them, the best you can.
Here are some of our top recommendations for managing discretionary expenses:
Outline a clear budget
Just like planning a vacation, having a budget for discretionary spending helps you stay on track. Decide how much you can afford to spend each month and stick to it.
Negotiate with your suppliers
Don’t be afraid to haggle! You might be able to get a better deal on things like subscriptions, gym memberships, tickets, insurance plans, utilities, or even phone and internet contracts.
Regularly review your spending
Take a look at your spending habits every month and ask yourself: are there areas where you can cut back? Maybe you’re spending too much on corporate lunches or office parties.
Prioritise your discretionary expenses
To use a non-cupcake analogy, think of your discretionary expenses as toppings on a pizza. You want to pick the ones you love most, right? So, when it comes to spending your extra money, make sure you’re getting the most out of it.
Get a petty cash box
Starting a petty cash box can be a great way to manage smaller discretionary expenses. It’s like having a little stash of cash on hand for those unexpected costs that pop up.
Encourage cost-saving measures
Look for ways to save money on your discretionary expenses. This could mean finding cheaper alternatives, buying in bulk, or using coupons.
Track all your expenditure in granular detail
Stay on top of your spend and keep all your discretionary and non-discretionary expenses in one place with our sophisticated expense management platform Capture Expense.
Book a demo today to see how we can help.