137: Direct Costs vs. Expenses & Why You Should Care About Knowing The Difference

The best profit decisions are happening with your time, energy, and money, which means more pay, play, and profit in your business and life. And a huge part of that is understanding your financials. 

Your financials are three-dimensional – profit, tax, and cash flow. You also need to think about direct costs versus expenses in all these three dimensions. “Direct cost” refers to the cost directly tied to your sales. You incur them directly with your sales. “Expense” refers to the operation cost. These are the things you do and spend money on that are not directly tied to the sales. Everything you spend obviously supports the sales but they're not directly tied to the sale. Now, the IRS has a very defined structure on how they want to see your costs and expenses filed on the tax return. This is part of the tax compliance. 

Today, we're going to dive into direct costs versus expenses, and why you should care about knowing the difference. And as a small business owner, you should definitely care!

Now, you have to get the foundation in place first, because if you don't understand the foundation of direct cost versus expenses, it's hard for you to navigate the three-dimensional conversation.

In this episode, you will hear:

• The difference between direct cost vs. expenses
• Why you should care about the difference
• The importance of having a relationship with your tax accountant
• Why you shouldn’t do miscellaneous expenses or general expenses
• Why your profitability and cash flow are not improving

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