A discretionary expense is one the business chooses to incur and could stop without breaching a contract or stopping the work: the team lunch, the conference, the advertising campaign, the software nobody quite uses, the upgrade that could wait. The opposite is a committed expense, fixed by a lease, a contract or the need to deliver. The split is different from fixed against variable, and it is the one an owner reaches for first when a month goes quiet. This page is for the small business owner marking discretionary costs in the record: what qualifies, how to show it, and how to use it. The business expense spreadsheet on this site lays out the month by category.
The test
Could the business stop this cost next month without breaking an agreement or failing a customer? If yes, it is discretionary. Rent, insurance, loan repayments, salaried payroll and materials for orders already taken are committed. Marketing, travel, entertainment, training, subscriptions on monthly terms, equipment upgrades and most professional development are discretionary. Some costs sit in between, a marketing contract with a notice period for instance, and the record can note the notice period.
Discretionary is not the same as variable
A variable cost moves with sales and may be entirely committed: the materials for an order you have accepted. A discretionary cost may be entirely fixed: a monthly retainer you could cancel. The two splits answer different questions; fixed against variable tells you how the business scales, discretionary against committed tells you what you can cut this month.
Marking it in the record
Lay out the month by category and tag each line or category discretionary or committed. Total the discretionary lines. That total is the room the owner has in a quiet month without renegotiating anything; the committed total is what the business must earn regardless. The business expense spreadsheet here carries the tag so the two totals fall out of the month.
Reimbursed spending is mostly discretionary
Team lunches, travel to a conference, a course, a client dinner: most of what employees pay and claim back is discretionary spending, which is why the expense policy is where discretion is governed. The policy says what may be spent without asking, what needs approval and what is never reimbursed; the expense policy builder on this site drafts it.
Using the split
Read the discretionary total every month against the plan. When it rises, ask which lines; when the month is quiet, it is the first list to review, not the payroll. A discretionary expense is not a bad expense, it is a chosen one, and the point of marking it is to keep choosing it on purpose. PerDiemDesk Pro, at $4 per month for the whole team, keeps claims against their categories.
Questions people ask about discretionary expense
Is marketing a discretionary expense?
Usually, unless it is under a contract with a notice period. It is often the largest discretionary line a small business has.
Are employee reimbursements discretionary expenses?
Most are: travel, meals, training, entertainment. The expense policy is where the business decides which discretionary spending it will pay back.
Should discretionary expenses be cut first in a downturn?
They are the first list to review because cutting them breaks nothing. Whether to cut a particular one is a judgement about what it earns.