Best Ways To Keep Track of Your Business Expenses
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Small business owners have to wear many hats, including the accounting and bookkeeping hats. Unfortunately, these individuals are so busy they can’t be bothered to look at spreadsheets all day and ensure the data is correct. Many businesses struggle to stay on top of their expenses, which means they could be spending more money than they need to keep their business operating.
Tracking and analyzing business expenses is a necessity for managing your business. When done well, it can help you avoid financial issues and plan better while ensuring you can still pay your employees and make a profit.
Business expenses are any costs you incur in the operation of your business, including rent, payroll costs, inventory, electricity, and even office equipment and supplies. When you file your taxes, these expenses are also deductions and are recorded on an income statement to demonstrate your profit and loss.
Should You Track Expenses?
The answer to this question is always yes. You should track business expenses. As a business owner, you need to perform essential and basic financial management practices, including budgeting and expense tracking.
- Tracking your expenses can help you:
- Build a budget
- Get deductions on your tax return
- Manage cash flow
- Identify savings opportunities
- Manage business loan payments
Best Ways to Track Business Expenses
To track all of your expenses accurately, you should have some type of bookkeeping in place. For example, you can use professional tax software to help you keep track of all businesses expenses and file your taxes during tax season.
You may also choose to track your expenses manually if you work with a CPA during tax season. Manual tracking for a small business requires you to go through your credit and debit card payments, receipts, and invoices for the week and collect all your expenses. Then, if you don’t have a bookkeeper, you’ll need to take all of those documents and put them into a spreadsheet to ensure all of your expenses are being tracked in some form.
At the end of each month, the expenses listed in your spreadsheet should be used to form reports, including:
- Income statement
- Cash flow statement
- Balance sheet
- Accounts payable report
- Accounts receivable report
Depending on the nature of your business, you might also want to have an inventory report. If you or your bookkeeper has great excel experience, then creating these reports can be easy. However, most modern bookkeepers prefer to use accounting software to help them manage all of these important numbers and documents.
Accounting software can automate the data-entry process while eliminating human error from the equation, which means you’ll have more accurate reports. Tax software also allows you to scan or take photos of your receipts and match them to expense categories. Not only that, but accounting software allows you to invoice directly from the dashboard so you’ll never miss another payment. Even with the help of software and an experienced bookkeeper, you can make tracking expenses easier. Here’s how:
Open a Bank Account
Most small business owners make the mistake of using their personal debit cards for business expenses. However, this can be detrimental because you’re dipping into your account to pay for the business, which can leave you unable to pay other bills, such as your mortgage.
Opening a business bank account can make it easier for you to track all of your business expenses because you won’t have to try to identify them in your credit card statements. Business bank accounts are also a form of protection because they keep your business funds separate from your personal.
If you want to ensure you’re tracking all of your expenses correctly, don’t stop at just opening a checking account. Instead, open a business savings account that allows you to earn interest and a credit card that allows you to make larger purchases.
Use a Dedicated Business Card
Once you have a business credit card, you have to use your business credit card for it to do you any good. Using a business credit card can help your business establish a credit history, allowing you to more easily receive financing if you ever need it.
It also allows your company to make larger purchases when you don’t have enough funds in your checking account.
Always Use Accounting Software
When you connect accounting software to your business bank account, it automates your bookkeeping and tracks all of your expenses so you don’t have to worry about doing it yourself. The only caveat is that sometimes software makes mistakes, so you must review it at the end of every month to accurately track expenses. If you’re a larger business with lots of cash in and out, then you might want to consider checking your software more often to ensure it’s properly working.
Digitizing your receipts only requires scanning them and keeping them in a folder on your computer. While it may take a few extra minutes compared to throwing receipts in a box, it allows your bookkeeping to be more accurate. Not only that, but because your bookkeeper won’t have to search through a box for receipts, it will take him or her less time to do their job so they can focus on accurately doing it.
Hire a Bookkeeper
If you’re doing all of your bookkeeping yourself while trying to run the business, you might make some mistakes because you can’t focus on one task at a time. Hiring a bookkeeper allows you to free up your time to focus on growing the business. A bookkeeper will ensure your financial records are accurately kept and keep your finances organized so you can easily work with an accountant come tax season.
If your business is small, you might only require a bookkeeper part-time, but if you have a large business, you might need to hire bookkeepers for each financial department, including accounts receivable and accounts payable.
Tracking Your Expenses
If your business is small or new, implementing an expense tracking plan now can help you save time and energy in the future. Once you have the right system down, you can begin automating tasks and ensuring your business can grow.
Matt Casadona has a Bachelor of Science in Business Administration, with a concentration in Marketing and a minor in Psychology. Matt is passionate about marketing and business strategy and enjoys San Diego life, traveling, and music.
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