Have You Done an Expense Audit Lately?
- Megan Rueckert
- Mar 18
- 4 min read
If the honest answer is no, you are not alone. Most business owners know they should be reviewing their expenses regularly, but between running the business and serving clients, it rarely makes it to the top of the list. So what exactly is an expense audit, and why does it matter?
An expense audit is a two-part review. The first part is examining your cost of sales to make sure you understand what it actually costs to deliver your services and whether your pricing reflects that. The second part is looking at your recurring expenses and making sure every dollar you are spending has a purpose. Sometimes people call this budgeting, but an expense audit is really about being intentional with your spending rather than just spending because you always have. That intentionality is what improves overall profitability, and it also sets you up to build a real budget and start tracking the key performance indicators that tell you how your business is actually doing.
Both parts matter. And for most growing service businesses, neither one is happening as consistently as it should.
Part One: Do You Know Your Cost of Sales?
This is the part that service businesses miss most often, and it is the part that can quietly erode profitability without anyone noticing.
Cost of sales, sometimes called cost of goods sold or COGS, represents the direct costs of delivering your service. For service-based businesses, this typically includes:
Subcontractor labor - If a subcontractor is working on a specific job, that cost belongs in cost of sales, not lumped in with your general subcontractor expenses (Professional Fees).
Direct labor - If you have employees whose time is tied directly to delivering the service, their wages are a cost of sales.
Job-specific software or materials - Anything purchased specifically to complete a project or deliver a service belongs here.
The reason this matters is that if your chart of accounts is not set up to capture these costs separately, you cannot see your gross profit margin (or accurately track profitability at the project level). And the business as a whole can look just fine while individual projects or service lines are quietly losing money.
This is one of the most common situations I see with growing service businesses. They have enough volume that overall revenue looks strong, so no one digs deeper. But when business slows down, they find out that certain projects were never actually profitable to begin with. Knowing your cost of sales by project tells you which work is worth doing and whether your pricing reflects what it actually costs to complete it.
It Starts With Your Chart of Accounts
Before you can review your cost of sales, your books have to be set up to track them. That means having a chart of accounts with a dedicated cost of sales section, and making sure expenses are categorized correctly from the start. Subcontractor costs coded to the wrong category, direct labor buried in general payroll, job materials mixed in with office supplies. These are the kinds of setup issues that make it impossible to get a clear picture of where your margins actually are.
Once the structure is right, reviewing cost of sales becomes part of your regular financial review rather than a major project to untangle. You can look at each job or project, compare what you brought in against what it cost to deliver, and make informed decisions about your pricing and the types of work you take on.
Part Two: Are You Being Intentional With Your Recurring Expenses?
The most common culprit here is subscriptions that nobody is using anymore. Software gets purchased, team members stop using it, and the charge quietly keeps hitting the card every month. It adds up faster than most people realize.
But unused subscriptions are just one piece of it. Recurring expense issues can show up in a lot of places. For construction businesses, it might be snacks and drinks added to the company card every time the company truck is filled up. For others, it might be vendor charges that made sense at a certain stage of growth but no longer fit where the business is today.
And then there are the personal expenses that quietly make their way onto the business card. This happens more often than anyone likes to admit, and it creates problems both for your books and for how your expenses are reported.
Going through your expenses with intention means asking a simple question about each one: is this spending moving the business forward, or is it just happening? That question alone can surface a surprising amount of waste. And the exercise of answering it for every line item is what eventually becomes a budget. You are not cutting costs for the sake of it. You are deciding what your spending should look like and making sure reality matches that decision.
Ideally, this review happens once a year. In practice, most business owners are too busy running the business for it to happen consistently. It is one of the first things I look at when I take on a new client or come in for a cleanup project, because it tells me a lot about where money is going and whether anyone has been paying attention to it.
When Did You Last Look?
If you cannot remember the last time you reviewed your cost of sales or went line by line through your recurring expenses, it is probably time. The goal is not just to find savings. It is to understand what your spending is doing for your business, make sure your pricing reflects your real costs, and build the foundation for smarter financial decisions going forward. Once you have done it once with intention, it becomes a lot easier to turn it into an annual habit and start tracking the numbers that actually tell you how your business is performing.
Comments