Cash flow is vital when it comes to running a business, big or small, as it allows you always to monitor your business and see exactly how business is performing. In this article, we will talk on how to track expenses for a small business to help you stay on top of your records.
When it comes to tracking expenses, bookkeeping is the base of it all. However, we can all agree that bookkeeping is not everyone’s cup of tea.
So what is bookkeeping?
Bookkeeping is recording all your financial transactions daily.
This way, you can see what you are spending your money on.
Why should you track your expenses?
Tracking expenses for small businesses has a lot of benefits to it, such as saving you time and helps you avoid the last-minute tax season hustle.
It also keeps you on toes with the tax deductions you can claim and helps you in detecting any financial errors such as double paying. You remain up-to-date with any financial information concerning your business.
It does help you get rid of unnecessary expenses such as that subscription you forgot to cancel as well as having all your documents on record when applying for a loan. You’re able to get a clear picture of how much you spend within a certain period.
By tracking your expenses, you can keep an accurate record of your income, thus making it easy for you to determine the success of your business. You’ll also be able to identify any areas you need to improve on within your business.
Ways to track your expenses
Discussed below are some effective ways of tracking the expenses for your small business:
1. Have all your receipts in one place.
The most basic way to start tracking your expenses is to, have all your receipts in one place, and you could use anything!
From an old shoebox to a receipt bin, a file, or even store them digitally using tools such as receipt tank or Shoeboxed.
This way, you can have all your paperwork in one place when you are ready to tackle them. The receipts can also be a useful guide in situations where you need to cut down on your expenses.
2. Note every business expense as it occurs.
We often have busy schedules and may leave out an expense when you’re going through your paperwork at the end of the day.
To avoid such, note every cost as soon as it occurs, this could be on your phone diary or a sticky note.
3. Dedicate time for bookkeeping.
As a start-up owner, you already have too much on your plate; however, tracking your expenses is equally important. Since you don’t have to do it daily, you could pick three hours a week, say Saturday afternoons, and spend the time keying in your records.
On-time dedication, make sure you do your entries every week, by doing so, you meet the IRS timeliness general rule to track and document your transactions weekly, even though it is not a law yet.
To help with doing your records weekly, sort your paper work out daily, such as going through your notebooks and sticky notes, printing out your receipts for any online purchases made, and keeping them in the receipt box.
When documenting your expenses, make sure that capture:
- The date of the transactions
- The type of transactions, for example, was it an income or an expense? For an expense, who you paid. I .e company name.
- The exact amount of the expense
- A detailed purpose for that expense. Example: Bought ink for printing shipping labels.
Keying in the above details is among the things that help you meet the IRS standard, amongst others is having your sales receipt copies, invoices, and other documents that support your numbers accuracy.
4. Separating your business spending from your personal spending.
Many small businesses suffer from having owners mix their personal and business expenses. This affects the business deductible tax claims at the end of the year because when documenting the cost, it will miss “A detailed purpose for that expense.”
To relieve your businesses off of such, make sure you have a separate bank account for your business that you withdraw from when you want to make any purchase or make payments directly. It doesn’t have to be a business account; it could be a different personal bank account that you use solely for business purposes.
Even as a small business owner, you want to add yourself to the payroll and put it as an expense to manage your expenses separately.
5. Make the most of your tax-deductible expenses.
It is essential to understand those expenses that are tax-deductible and those that are not when managing finances. Not only will you save your business some money, but you will easily know which tax deductions to claim from your taxable income.
The process might sound tedious, but it’s easy if you make a habit of tracking your daily expenses and being on track with your business finances.
For you to be sure, you can always check with the IRS website for the taxable and no-taxable.
6. Account for any business mileage and travel.
It is often easy to overlook mileage for small businesses, and this could be any flight tickets, hotel rooms say in attending a conference, lunch with a client, or cab fees. Anything you spend on a business trip that isn’t personal should count as a business expense. Note it down.
Luckily, we have tools such as Google calendar to record your activities on our phones that come in handy when you’re not at home or your usual premises.
7. Have a checklist that you follow.
We are all human and bound to error. You cannot keep in mind everything that you are supposed to do.
But having a to-do list that you check upon completing any task will help with this. Some of the things you can include in your list are:
- Going through receipts
- Going through emails
- File any paperwork
- Making notes for things you need (always have a sticky note with you for whenever an idea pops up)
8. Have a reliable accountant go through your records.
This can be either on a quarterly or yearly basis. As a small business owner, hiring someone to go through your files once is probably a big no. However, getting external guidance for your business will do you a lot of good financially. You might want to consider accountants, CPAs, or bookkeepers.
Last but not least, you want to make bookkeeping easy and fun for you using the reward policy, it could be a glass of wine, a movie, or anything else, utterly depending on your preference.
Quick Fact: Small businesses contribute slightly over 50% of the United States GDP.
However, about 90% of them do not benefit from claimable tax deductions because they do not do proper bookkeeping.
So, you want to educate yourself on how to track expenses for your small business and claim as much tax as possible!