Operating a business is very demanding as there are so many processes you need to monitor, people to deal with, while at the same time keeping your customers satisfied. Amidst all these hustles, less exciting tasks like expense tracking can easily be forgotten. But this should not be the case. Expense tracking is just as important as monitoring your income and employee productivity.
Why is that so?
You see, tracking your business expenses enables you to focus on the bigger picture. It is also a fundamental aspect of good bookkeeping that helps to predict when the business will break even. All you need to do is to study patterns and trends of your expenditure, calculate quick ratios, and then make the forecast.
Expense tracking also enables you to know where your business is financial. This is important if you intend to expand and grow your business. It also helps you to establish which measures are working and which ones aren’t. Moreover, it allows you to make an informed decision and make improvements to the existing systems.
Another valuable thing about expenses tracking is that continuous tracking of expenses can help you envisage future expenses, which subsequently allows you to map out your cash-flows and ensure that you have adequate money to cover them. Cash flow problems have always been one of the most common challenges facing small business enterprises, therefore, establishing a clear record of your irregular and regular expenditures is crucial.
Additionally, continuous expenses tracking and categorization is one of the smartest ways of making your tax time bearable. This will also help you save time and energy as well as help you to minimize work and costs for your accountants.
What is the best way to track business expenses
Most small businesses, usually don’t have an adequate budget to spend on hiring employees or purchasing expensive programs to keep track of their daily expenditure. It is because of this reason that there is a need to identify the best but affordable way to track business expenses. some of the best ways to track your business expenses are to open a business bank account, identify the ideal accounting system, install an expense tracker and lastly link your business account to an expense tracking software or app
How do you keep track of expenses
Here are five ways on how to track your business expenses
1. Open a business bank account and acquire a business credit card
The first thing you need to do after starting a business is to open a separate business account. This will enable you to distinguish between your personal money and income from the business. Secondly, separating your bank account allows you to organize your finances and makes monitoring of cash flow much easy. It also makes things a bit easier during tax time.
Another thing that you should do is applying for a business credit card. A credit card is another way of separating your business and personal finances. Visit your business bank website and inquire whether they offer business debit or credit cards. If they don’t offer such a service, you can opt for a master card. Mater cards usually offer customized cards for both large and small scale businesses.
2. Scan or digitize all your business paper receipts
Tax time can be pretty daunting if all your receipts are in hard copies. Just imagine sitting down in your office with a heap of creased paper receipts punching on the calculator and scratching your head off trying to remember the transactions each receipt represents. This is even more frustrating if you’ve mixed your personal and business receipts together. You can save yourself all these troubles by regularly (daily) digitizing and filling your receipts. Every time you purchase something, ensure that you take pictures of it immediately using a receipt scanner.
It is essential to retain all your business receipts as it will help you when you are accounting for your expenditures. During auditing, auditors will want to see the receipt for all the expenditures you incurred. This can be made easy if you have all you record clean, and digitally recorded.
3. Identify an accounting system
Another thing you need to consider before you begin tracking your expenses and income is an accounting method. Generally speaking, there are two main types of accounting systems i.e. cash basis and accrual basis.
The cash basis method is the best accounting technique for small business owners. With the cash technique, you can record expenses immediately you incur them and income immediately you receive them. The accrual method on the other hand is a little complex compared to the cash basis as it contains additional accounting options. With accrual, you can input expenses immediately you incur them irrespective of whether or not you’ve paid the money.
4. Install and expense tracker on your phone
Expense tracker is the easiest and effective ways of keeping track of your business expenses. There are several expense tracker apps and software available in the market today. All you need to do is to identify the one that best suits your business needs and then download and install it. Most of these expense trackers can be accessed on different platforms i.e. lab top, mobile phone, or tablet. You can also use the tracker to catalog all your transactions. When you categorize all your expenses, you are simply informing your accounting software, how to bookkeep that expenditure. This enables you to come up with some insightful reports that can help you determine the direction your business is heading? Are you making profits? Or are you losing money? Are you meeting your short-term goal? These are just but a few questions that these kinds of reports can help you answer.
5. Link your bank account to your accounting software
By linking your business account to your accounting software, you will be able to easily upload transaction details immediately as they happen. Having an accounting software that contains this type of functionality, makes it easier for you to remain on top of your expenses. With the automatic transfer options that some of these accounting softwares have, it is less likely for you to miss any transaction particularly if you’ve separated your business bank account from your personal account. All the new expenses will appear under the list of transactions every time you log in. You will only be required to categorize them according to your own desires and link them to the respective receipts. This significantly reduces the time you would have spent on your bookkeeping activities and in ensuring nothing is left behind.
6. Track expenses
After you’ve decided how you will track your expense, purchase, and installed an expense tracker, the next and most important step is expense tracking. It is essential that you track expenses on a regular basis. Tracking your expenses, as stated earlier, helps you to monitor your business growth, keep track of deductibles, build financial statements, and prepare tax returns. You also need to understand types of expenses i.e. which expenses are tax deductibles. Examples of tax-deductible expenses include entertainment, transportation, or phone expenses. Other tax-deductible expenses are; self-education, expenses, home office expenses, clothing, dry-cleaning, and laundry expenses. For more information on this type of expense, you can visit the taxation office website.
If you have recently started a small business and you are struggling to keep up with the business hustles, it is time that you consider other methods of tracking your business expenses. You also need to ensure your business expenses are correctly categorized and by doing so, you will be able to keep track of your business pulse all throughout the year,