Tracking business expenses is a crucial aspect of running a successful business. It helps you stay organized and on top of your finances and enables you to make informed decisions about where to allocate your resources.
However, tracking business expenses can be time-consuming and challenging, especially for small business owners who often juggle multiple roles. Here are some tips to help you track your business expenses more effectively.
Accounting software is one of the easiest and most effective ways to track your business expenses. When choosing accounting software, look for one that suits your business needs and budget.
“There are many accounting software options that offer features like expense tracking, invoicing, and financial reporting,” says Max Baecker, President of American Hartford Gold, a Gold IRA company that is helping people roll over their retirement accounts and invest in gold. “These software programs can help automate the process of tracking expenses and make it easier to manage your finances.”
Some software options are geared toward small businesses, while others are better suited for larger companies. Consider the features you need, such as connecting your bank accounts, generating financial reports, and tracking expenses by category.
Categorizing your expenses is an essential step in tracking your business expenses effectively. By categorizing expenses, you can easily see where your money is going and identify areas where you may be overspending or underspending. It also helps when it comes time to file your taxes, as you can quickly identify which expenses are tax-deductible.
“When categorizing expenses, keep it simple and straightforward,” suggests Derek Flanzraich, Founder and CEO of Ness. “Some common categories include office expenses, travel expenses, marketing expenses, and utilities. You can also create subcategories within each category to further organize your expenses.”
For example, under the marketing category, you could have subcategories for social media advertising, print advertising, and events.
Keeping receipts and invoices organized is critical for tracking business expenses. Not only is it necessary for tax purposes, but it also helps ensure you don’t miss any deductible expenses. Keeping receipts and invoices organized also makes reconciling your accounts and identifying any discrepancies easier.
“There are several ways to keep receipts and invoices organized,” explains Will Blum, Founder and CEO of Bluebird Hardwater. “You could use a physical filing system, such as a binder or file cabinet, to keep paper receipts and invoices. Alternatively, you could use a digital filing system, such as a cloud-based storage system or accounting software that allows you to upload receipts and invoices directly.”
Whichever system you choose, make sure it’s easy to use and accessible when you need it.
A budget helps you identify how much money you have coming in and going out each month, allowing you to plan and allocate your resources effectively.
“When creating a budget, consider your business’s fixed expenses, such as rent and utilities, as well as variable expenses, such as inventory and marketing costs,” says Drew Sherman, VP of Marketing at RPM. “Once you have created your budget, stick to it. Review your expenses regularly and adjust your budget as needed.”
A thoughtful budget is the lifeblood of a business, so create one with care and adhere to it each quarter.
Using a separate business account for your expenses is a smart way to track your expenses more effectively. This is a best practice, no matter how big or small the company.
“By separating your personal and business finances, you can easily see where your money is going and avoid mixing personal and business expenses,” advises Jack Carrere, CEO of Prokeep. “It also makes reconciling your accounts and preparing your taxes easier. When choosing a business account, look for one that offers features like online banking and mobile banking, as these can help you track your expenses on the go.”
Business accounts are easy to set up and come with many other perks, so don’t miss this chance to improve your overall accounting and clarity.
Scheduling regular expense reviews is a great way to stay on top of your business expenses. Set aside time each week or month to review your expenses and ensure that everything is accurately categorized and recorded.
“Regular reviews also help you identify any areas where you may be overspending or underspending and allow you to adjust your budget and spending habits accordingly,” shares Richard Li, Co-Founder of July who offers some of the best carry on luggage on the market. “Make sure to review both your fixed and variable expenses and any outstanding invoices or bills.”
There will be times when you think a review isn’t necessary, but even a mundane meeting is crucial for preventing small issues before they worsen.
Automating your expense tracking can save you time and ensure you don’t miss any expenses. Many accounting software programs offer features like automatic bank feeds, which can pull your transactions into your accounting software.
“Don’t fear automation when it comes to organizing your expenses,” shares Nicholas Mathews, CEO of Stillwater Behavioral Health. “This eliminates the need for manual data entry and reduces the risk of errors. You can also set up automatic reminders for bill payments and other recurring expenses to ensure you don’t miss any payments.”
In addition to time savings, automating expense tracking can provide real-time insights into your financial health. With immediate access to your financial data, you can quickly identify trends, track your cash flow, and adjust your spending as needed.
Keeping track of expenses on the go is essential for business owners who are frequently moving. Many apps allow you to scan and save receipts directly to your phone or accounting software.
“This eliminates the need for paper receipts and makes it easier to track your expenses when you’re away from your office,” says Max Schwartzapfel, CMO of Fighting For You. “You can quickly and easily capture receipts and log expenses as they occur, rather than waiting until you’re back at your desk. This can help you avoid losing receipts or forgetting expenses and reduce the risk of errors in your accounting. Some apps even offer features like automatic expense categorization and integration with accounting software.”
When choosing an expense-tracking app, it’s important to consider your specific needs and budget. Some apps may offer more advanced features but come with a higher price tag, while others may be more basic but more affordable.
Monitoring your cash flow is critical for the success of any business. Cash flow is the amount of cash that comes into and out of your business over a specific period. It’s essential to have a positive cash flow to pay your bills and invest in your business’s growth. Review your accounts receivable and accounts payable regularly to monitor your cash flow effectively.
“By automating the process of tracking expenses, you can quickly and easily see how much money is coming in and going out of your business regularly,” Patricio Paucar, Co-Founder and Chief Customer Officer of Navi explains. “For example, if you notice that your expenses consistently exceed your income, you may need to adjust your spending habits or look for ways to increase your revenue. On the other hand, if you have excess cash, you may consider investing in new opportunities or paying down debt to improve your financial health.”
By having up-to-date and accurate information about your cash flow, you can make better financial decisions that align with your business goals. This can help you avoid cash flow problems, such as running out of cash or having difficulty paying bills, which can ultimately impact your business operations and growth.
Implementing a spending policy can help you control your business expenses and ensure that all purchases are necessary and reasonable. A spending policy outlines guidelines for spending on various business expenses, such as travel, office supplies, and equipment. It can also set limits on spending for individual employees or departments.
“By implementing a spending policy, you can reduce the risk of overspending and prevent unauthorized purchases,” advises Raja Subramanian, GM of Power Wizard. “It’s important to communicate your spending policy to your employees and ensure they understand the guidelines and restrictions. Regularly reviewing and adjusting your spending policy as needed can help you optimize your business expenses and improve your bottom line.”
A smart spending policy is a set of guidelines or rules a business puts in place to regulate how money is spent. The policy ensures that all spending aligns with the company’s goals and values and that resources are used efficiently and effectively. A well-designed spending policy can help businesses control costs, improve financial management, and increase profitability.
Effective expense tracking is crucial for the success of any business. By implementing these tips and tricks, you can streamline your expense tracking processes, reduce the risk of errors, and make informed financial decisions.
From setting a budget and using a separate business account to automating your expense tracking and implementing a spending policy, there are many strategies you can use to track your business expenses more effectively. By proactively managing your business finances, you can optimize your spending and improve your bottom line.