Most of us have goals that include making more money or managing the money we already have, but whatever aim you have for your income, you will need some simple details about it. Although it’s necessary to consider your expenses, they make up some of the most valuable information you can gather on where your money goes.
Tracking business expenses is a simple process that provides much information about your spending habits.
What are Business Expenses?
Any transaction or purchase related to your business is a genuine business expense. The accounting and reporting of capital are tracking business expenses. Any cost relevant to your business shall be considered a business expense. Here are basic business expenses you are likely to face:
- Bank fees
- Consulting fees
- Contract labor
- Dues and subscriptions
- Office Supplies
- Postage and delivery
- Printing and copying
Although these are the more common business expenses, any transaction related to your business may be recorded as an actual business expense.
What is Business Expense Tracking?
Tracking business expenses is an essential part of building your small business budget. Tracking your business expenses regularly by reporting receipts, invoices, and other outgoing spending improves your budget’s financial health.
Tracking expenses will help you stay on top of your cash flow and prepare you for tax time.
How to Track Business Expenses?
There are several methods of tracking business expenses. Still, you will need to build an expense tracking plan that works for you to manage your business finance, keep track of costs and ensure that expenses are paid.
Beginners can collect spending receipts and arrange them monthly to track business expenses. Get more information from other expense tracking systems, like listing them in a spreadsheet, using money management apps, or even using a business expense tracker app. Still, all approaches have one thing in common you have to get into the habit of thinking about your expenditures.
Here are seven simple steps to track your business expenses:
7 Steps For Tracking Business Expenses
Step 1: Open a business account
Open a Business Bank account as a new business owner. When the account is active, use it for business transactions only.
Although you might be using your bank account for business purposes, having a separate business account would simplify tracking your expenses.
Step 2: Choose an appropriate accounting
You have a choice as to which method of accounting system to use in your business. Although the best option is to choose an accounting software program that will work with your business, you can also use notebook software, such as Microsoft Excel, to record your business profits and expenses.
If you plan to use accounting apps that are not in your business’s budget, opt for a free application like GnuCash or Wave Accounting.
Step 3: Choose cash or accrual accounting
You must select cash or accrual accounting when setting up the accounting system.
It is straightforward, most small businesses, sole proprietors, and freelancers use cash accounting. By using cash accounting, you’ll record expenses as they happen. For example, you record income when it is received and payments when they are made.
Accrual accounting is more in-depth and necessary for business growth, enterprises with workers, or more influential organizations. When a product is sold, you record profit with accrual accounting, not when you collect payment. The same goes for expenses that are counted on receiving the bill, not on paying the bill.
Step 4: Connect your financial institutions
You can improve tracking business expenses by linking financial institutions to accounting software. Although some may find this option inconvenient, it’s safe and secure.
Once you connect your business account, you can access all banking transactions directly to your accounting software and, in many cases, automatically post it to the correct version.
This method makes it easy for the company to account for any cost incurred.
Several typical accounting software applications, like QuickBooks Online, Xero, FreshBooks, and many others, make it easy to link your bank accounts to track business expenses quickly.
Step 5: Begin managing receipts properly
One way to ensure that you correctly track your business expenses is to use the smartphone app included in your accounting software package. If your software does not provide such an app, you can opt to use an application that combines expense control with your software.
Such apps usually allow on-the-go expense management, allowing you to take a receipt photo and upload the image to your device, where it will be saved and eventually added at the correct cost. You may use the receipt to produce an expense report, whether it is a refundable expense.
Step 6: Record all expenses promptly
You learned in Accounting that accounting for all income and expenditures is essential. Tracking can do this in many ways. This process is entirely automatic when connecting your financial institutions to your software application. Still, you may need to set up your accounts correctly and ensure the imported transactions are appropriately distributed.
Applications such as Kashoo provide the option to enter expenses manually. It is suitable for those who opt out of automatically importing transactions. You may also opt to import your bank statement at the end of the month in most cases and record your expenses at that time.
Step 7: Using a business expense tracking app
Once you decide how to record your income and expenses, you must start keeping track of expenses regularly. Tracking your costs lets you control your business growth, build financial statements, keep track of deductibles, and file tax returns.
If you are spending a lot on the business, you must record that spending by using some of the expense apps on the market may be worth investigating. Such a business expense tracker app is designed to track expenses such as office supplies, travel, utilities, meals and entertainment, and many other business-related expenses.
Benefits of Tracking Business Expenses?
Whether working on making a budget or simplifying a small business’s bookkeeping, the first step would be to track your expenses. If you spend much of your money digitally (using a debit card or credit card), you may be able to get away with tracking your cash expenditure.
There are several benefits of tracking your expenses. Most money management applications will import such electronic expenses automatically, further simplifying matters. You can also choose to use your program from the ground up, like setting up a spreadsheet and entering information manually.
How Does Expense Tracking Help in Business?
Tracking your business expenses is important because it helps you see the big picture. It leads to accurate bookkeeping, enabling you to know when you break even, calculate your quick ratio, explore trends in your numbers, and make predictions for your business.
There are many benefits to tracking business expenses. Let’s know How Does Expense Tracking Helps your Business?
1. Tracking Expenses Makes Money Management Better
Cash flow shortages can cause your business to fail. Staying on top of your monthly budget is key to your success as a business owner. There is no better way of planning your budget and knowing where your money is going than tracking your expenses. Business expense tracking makes money management more straightforward.
Tracking your daily expenses will ensure you are financially educated throughout the year and not just throughout the tax season. Knowing where your money is going and how much you spend will make your spending habits healthier. Plus, you’ll better understand where to spend money to impact the business positively.
2. Expense Tracking Plans You For Tax Season
Tax season is a time of stress for everyone, particularly business owners.
Knowing what tax-deductible expenses are can ensure you don’t lose your money. Tracking your expenses regularly will help you from searching through shoeboxes and your receipt pockets. Deductible expenses include:
- Business meals
- Telephone and internet expenses
- Travel expenses to attend client meetings
- Office Supplies
- Bank fees and interest
- Home office expenses
3. Give Your Employees Money Back With Expense Tracking
Small business managers are spending money on travel, accommodation, and other business-related purposes.
Tracking expenses provides a better understanding of the production costs for your business. A general approach for tracking expenses and recording employee spending would help business owners reward their employees efficiently and on time. Plus, you will keep your team happy by paying them back for their time.
4. Expense Tracking Makes Business Forecasting Easier
With tracking your expenses, estimating your business profitability became much more accessible. The calculation is simple now, Total revenues minus Total Expenses.
By giving them a better understanding of how your business is doing, you will provide future investors with a better idea of the performance of your business. When tracking your expenses, you do not need to guess your cash flow. You can offer stockholders a realistic view of your business forecast and strategy with the help of expense tracking.