Follow the Money: Where Small Businesses Spend and Why it Matters

At Found, we strive to better understand our customers. One of the best ways to do this is to understand how the freelancers and small businesses who use our product spend their hard-earned money. 

Over the past two years, we got deep in the data. We analyzed: 

• 7M+ categorized expenses 

• From 121,000+ businesses

That’s a lot of transactions. And we overlaid this data with secondary research to be sure we were seeing the whole picture. Some of what we learned was surprising, some of it more obvious, all of it interesting. 

From travel to professional services to advertising, this is where small businesses spend and why it matters.

Out of office: Travel and transportation dominate expenses 

• Percentage of overall spend: 38.1%

• Average cost per transaction: $27.57

• Major Subcategories: Business meals, airfare, lodging

In the wake of the pandemic, small businesses have significantly ramped up their spending on travel and transportation, which now stands as the largest expense category according to Found’s transaction data. More than a third (38%) of all categorized transactions during this period were for travel and transportation-related expenses. This trend highlights the essential role of in-person interactions in building relationships and fostering business growth.

Navan recorded a 46% increase in global travel bookings year-over-year for small and medium-sized businesses from January 1 to November 31, 2023. Forward bookings for small and medium businesses are up 60% year over year. Additionally, 32% of smaller companies reported that their travel budgets had returned to pre-pandemic levels. The overall budget for business travel in 2023 reached 98% of the levels seen in 2019, showing a strong recovery trend.

Despite the rise of digital communication tools, business meals, airfare, and lodging remain critical expenses. Face-to-face engagements are still viewed as essential for establishing trust and closing deals, with 95% of people surveyed saying in-person meetings are crucial for long-term business relationships. Furthermore, a Harvard Business Review study found that face-to-face requests are 34 times more successful than email requests, underscoring the effectiveness of in-person communication for important business matters.

Business travel also positively impacts job satisfaction and productivity, with 83% of business travelers viewing it as a positive experience and 79% reporting that it improves their overall job satisfaction. In-person meetings generate about 13.36 ideas on average, compared to 10.43 ideas in virtual meetings, suggesting that face-to-face interactions foster more creativity and idea generation.

The resurgence in travel spending reflects the enduring value of human connection in the business world. Trust and loyalty, essential for long-term success, are significantly bolstered by personal interactions. A 5% increase in customer retention, driven by face-to-face sales interactions, can lead to profit gains of 25% to 95%, highlighting the substantial impact of maintaining loyal customers through personal service.

Fully digital: The future is now for small businesses

• Percentage of overall spend: 11.2%

• Average cost per Transaction: $49.71 

• Major Subcategories: Software and subscriptions, computer equipment, cell phone service

Despite the importance of in-person interactions highlighted by substantial travel and transportation spending, Found users are also investing heavily in technology. In the quest to stay competitive and efficient, small business owners are channeling resources into technology and equipment spending, which accounts for 11% of total small business spend.

Virtual meetings, while not replacing in-person interactions entirely, have found a permanent place in business operations. Almost 18% of corporate travel has been replaced with virtual meetings. This shift recognizes the benefits of virtual meetings, ranging from cost savings to lower carbon footprints, and companies providing collaboration software stand to gain from this trend.

A significant majority (87%) of small businesses report increased efficiency due to the use of technology platforms, highlighting tech’s role in streamlining operations and enhancing productivity. Furthermore, small businesses that make greater use of technology are more likely to experience growth in sales and profits. For instance, 82% of high-tech adopters reported increased profits in 2023, compared to 68% of low-tech adopters. 

By equipping themselves with the latest tools and technologies, companies are better positioned to innovate, streamline processes, and enhance their overall productivity, ensuring they remain at the forefront of their respective industries.

Hybrid work: Offices are important (but less so)

• Percentage of overall spend: 10.4%

• Average Cost per Transaction: $91.17

• Major Subcategories: Office supplies, office rent, utilities  

While technology and travel expenses suggest a shift towards remote work and mobile productivity, many small businesses continue to invest heavily in maintaining physical office spaces. Office expenses accounted for 10.4% of overall spend, compared to 38% for travel and transportation and 11% for technology. 

This ongoing expenditure on office supplies, rent, and utilities indicates that some small business owners will always require–or desire–a physical presence, even if reduced, to support collaboration, storage, and administrative functions for small businesses around the country.

Outsourcing expertise: The rising cost of professional services

• Percentage of Overall Spend: 17%

• Average Cost per Transaction: $315.91

• Major Subcategories: Contractor services, legal services, accounting services

The rising cost of professional services among small businesses underscores a strategic shift towards outsourcing specialized expertise. With an average cost per transaction of $315, businesses are increasingly investing in contractor, legal, and accounting services to support their operations and strategic goals—despite the high sticker price. This willingness to rely on external expertise highlights the importance of accessing specialized knowledge and skills that may be prohibitively expensive to bring in-house.

24% of small businesses outsource to increase efficiency, allowing them to leverage their in-house talent more effectively by offloading both technical tasks like coding and more mundane tasks like data entry. Outsourcing also provides small businesses with access to professionals and seasoned experts in specific fields, such as legal, accounting, and IT services. This access to specialized skills can be crucial for tasks that require a high level of expertise, with 37% of small businesses outsourcing both accounting and IT services to gain access to specialized knowledge and skills.

By leveraging professional services, small businesses can enhance their operational efficiency, ensure compliance, and make informed strategic decisions, ultimately driving their success in a competitive market.

Marketing matters: The more you grow, the more you spend

• Percentage of Overall Spend: 4.7%

• Average Cost per Transaction: $116.89

• Major Subcategories: Advertising and marketing, commissions and fees, gifts

In today's digital age, marketing and advertising continue to be a substantial investment for businesses aiming to attract and retain customers. Nationally, businesses spend 9.1% of their revenue on marketing on average. However, for Found customers—small business owners and self-employed professionals—this only amounts to 4.7% of their overall spending.  

We did, however, see that marketing spend increases as businesses age and grow. Marketing and advertising expenses account for 6.3% of total expenditures for companies that are over one year old, vs 3.3% for newer businesses. And, marketing and advertising expenses account for 8.9% of total expenditures for companies with over $50,000 in annual revenue, compared to 3% for smaller companies. 

This tracks with other data about how SMBs leverage marketing and advertising. According to one study, 73% of SMBs lack confidence in their marketing strategies. And 52% regularly delayed postponing or delaying their marketing efforts. Across all categories, this procrastination was born mostly out of lack of knowledge and lack of time. 

Small business owners wear a lot of hats, and it’s hard to find time to do everything at the same time. Outsourcing marketing and advertising can be expensive, so developing your own skills is important for success. It’s clear that once you grow—or in order to grow—more substantial investment in marketing and advertising will likely be required. 

These numbers are only part of the picture 

While 7M transactions are a lot of transactions, it’s incredible to note that in our data, nearly 4M additional expenses went uncategorized during that same time period. That’s more than a third of all transactions during this two-year span! 

Why does that matter? It’s less money in your pocket as a small business owner. Every time you lose track of an expense, you miss out on a chance to potentially reduce your tax bill. If you’ve ever wondered how to pay less taxes as a freelancer, the answer is tracking and deducting your business expenses. Every deduction you take lowers your taxable income, and less taxable income means a smaller tax bill. 

Tracking expenses can seem overwhelming, but Found can help you streamline the whole process. With Found, you can easily track and categorize expenses automatically. Every purchase you make with your Found card is categorized, and we’ll help you find write-offs. You won’t miss a deduction—or a chance to save. Using our built-in tools, Found customers save over $3,500 on taxes with Found.**

Find more write-offs, save more money.

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*Methodology: Found analyzed internal data from 7,051,881 categorized expenses from 121,667 businesses to pull these findings. Expense transactions ranged from May 2022 to May 2024.

**Tax savings figures based on savings data from current Found+ users over their lifetime of usage of Found, based on the expenses tracked in Found and the tax information they provided. Annualized data is from July 2024.

Disclaimer: The information on this website is not intended to provide, and should not be relied on, for tax advice.