How to Review Business Expenses Before Applying for Financing

Before applying for business financing, SME owners should understand where the business money is going.

A financing application is not only about how much the business wants to borrow. It is also about whether the company can manage its current expenses, handle repayments, and use the funds responsibly.

Reviewing business expenses before applying for financing helps SME owners make better decisions. It can also help them identify unnecessary spending, understand cash flow pressure, and decide how much financing is actually needed.

A simple expense review can make the business more prepared before speaking to lenders or submitting a funding enquiry.

1) Understand why expense review matters

Business financing should support the company, not cover up poor expense control.

If an SME applies for financing without reviewing its expenses, the owner may not fully understand why cash flow is tight. The business may borrow more than needed, borrow for the wrong reason, or take on repayments without solving the real issue.

An expense review helps the owner understand:

• Where money is being spent
• Which costs are necessary
• Which costs can be reduced
• Whether cash flow pressure is temporary or ongoing
• How much financing is realistically needed
• Whether repayments can be managed comfortably

This gives the business a clearer starting point before applying for funding.

2) Separate fixed and variable expenses

The first step is to understand the different types of expenses in the business.

Fixed expenses are costs that usually remain the same each month. These may continue even if sales slow down. Variable expenses change depending on sales, projects, or business activity.

Fixed expenses may include:

• Rent
• Staff salaries
• Loan repayments
• Insurance
• Software subscriptions
• Phone and internet bills
• Vehicle instalments
• Regular service contracts

Variable expenses may include:

• Inventory
• Raw materials
• Packaging
• Delivery costs
• Part-time labour
• Marketing campaigns
• Project-related expenses
• Sales commissions

Separating these expenses helps SME owners understand which costs must be paid every month and which costs depend on business activity.

3) Review recurring expenses

Recurring expenses can slowly reduce cash flow if they are not reviewed regularly.

These are costs that repeat weekly, monthly, quarterly, or yearly. Some may be important, but others may no longer be useful to the business.

SME owners should review recurring expenses such as:

• Software subscriptions
• Membership fees
• Marketing tools
• Storage services
• Maintenance packages
• Insurance plans
• Professional services
• Rental agreements

The business should check whether each recurring expense is still needed, still used, and still suitable for the company’s current stage.

Removing unused or unnecessary recurring costs can improve cash flow without affecting daily operations.

4) Identify expenses that do not support the business

Not every expense helps the business grow or operate better.

Some expenses may have been useful in the past, but no longer bring enough value. Others may have been taken on too quickly during a busy period or growth plan.

SME owners can ask:

• Does this expense help the business earn revenue?
• Does it support daily operations?
• Does it improve customer service?
• Does it save time or improve efficiency?
• Is it still being used regularly?
• Can the business operate without it?

This does not mean every expense must directly create sales. Some expenses are needed for operations, compliance, administration, or customer experience.

However, the owner should understand why each major expense exists.

5) Check whether personal expenses are mixed in

Some SME owners may use the same account for business and personal spending.

This can make expense review more difficult. It may also make the business’s financial position look unclear when preparing for financing.

Personal spending mixed into business records can include:

• Personal shopping
• Family expenses
• Non-business meals
• Personal transport
• Personal subscriptions
• Owner withdrawals that are not clearly recorded

Before applying for financing, SME owners should review whether business and personal expenses are properly separated.

Clear separation helps the owner understand the true cost of running the business.

6) Review supplier and vendor costs

Supplier and vendor costs can have a major effect on cash flow.

SME owners should review whether current suppliers still offer suitable pricing, payment terms, and service quality. This does not always mean choosing the cheapest supplier. Reliability, quality, and timing are also important.

When reviewing supplier costs, consider:

• Whether prices have increased
• Whether payment terms are manageable
• Whether bulk purchases are actually useful
• Whether there are cheaper but reliable alternatives
• Whether slow-moving inventory is tying up cash
• Whether the business is ordering more than needed

Better supplier planning can reduce unnecessary cash pressure before financing is needed.

7) Review loan repayments and existing commitments

Before taking new financing, SMEs should review existing repayment commitments.

This includes business loans, equipment financing, credit facilities, hire purchase arrangements, or any other regular payment obligations.

The owner should understand how much cash already leaves the business each month for repayments.

This helps answer important questions:

• How much is already being repaid monthly?
• When do current repayments end?
• Are repayments affecting cash flow heavily?
• Will a new loan make monthly commitments too high?
• Can the business handle repayments during slower months?

New financing should be considered together with existing commitments, not separately.

8) Compare expenses against revenue

Expenses should be reviewed in relation to revenue.

A cost may seem small on its own, but many small costs can become significant when added together. A cost may also be acceptable during strong sales months, but too heavy during slower periods.

SME owners should compare monthly expenses against monthly income to understand whether the business has enough breathing room.

This can help identify whether the issue is:

• Revenue is too low
• Costs are too high
• Customer payments are too slow
• Inventory is tying up cash
• Repayments are too heavy
• Spending is not being controlled

This review helps the owner understand whether financing is needed for growth, working capital, or cash flow support.

9) Decide what can be reduced before borrowing

Some expenses can be reduced before applying for financing.

This does not mean cutting costs blindly. Reducing the wrong expenses can hurt operations, service quality, or revenue. However, reducing unnecessary costs can make the business healthier before taking on new repayments.

Possible areas to review include:

• Unused subscriptions
• Non-urgent purchases
• Over-ordering stock
• Low-performing marketing spend
• Unnecessary upgrades
• Duplicate services
• High-cost suppliers that can be reviewed

Reducing waste can lower the amount of financing needed or make repayments easier to manage.

10) Use the review to estimate the right financing amount

After reviewing expenses, SME owners can estimate the financing amount more carefully.

The goal is not always to borrow the highest possible amount. The goal is to borrow an amount that fits the business purpose and repayment ability.

An expense review can help the owner decide:

• How much cash is actually needed
• What the funds will be used for
• Which expenses should be reduced first
• How much repayment the business can manage
• Whether the timing is suitable
• Whether the loan supports growth or only covers short-term pressure

This makes the financing decision more practical and controlled.

Final thoughts

Reviewing business expenses before applying for financing helps SME owners make better funding decisions.

It gives the owner a clearer understanding of fixed costs, variable costs, recurring expenses, supplier payments, existing repayments, and unnecessary spending. This helps the business decide whether financing is truly needed and how much can be managed responsibly.

Business financing can be useful, but it should be taken with a clear purpose and a realistic repayment plan.

For SMEs, an expense review is not only about cutting costs. It is about understanding the business more clearly before taking on new financial commitments.

When expenses are well managed, the business is in a stronger position to apply for funding, use the funds properly, and protect cash flow after financing is received.