How to track business expenses efficiently: useful tips
By Indeed Editorial Team
Published 6 July 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Tracking business expenses involves creating a detailed list of all purchases for goods and services, whether for business or leisure. This could span a wide variety of areas, but for now, this article discusses the kinds of small business expenditures that tend to go unnoticed but rack up to larger amounts. It's necessary to know how to track business expenses to monitor your spending and avoid surprises later on. In this article, we provide tips for how to track small business expenses.
How to track business expenses efficiently
Knowing how to track business expenses can help you keep track of its finances. Steps for tracking expenses include::
1. Know the value in tracking your expenses
Keeping track of business finances can be easy if you make use of the correct tools to help monitor its spending. In turn, this can lead to market gains. Tracking the business's money can also benefit you in regard to taxes as you're able to find potential tax deductions, which means paying less tax. By using a business expense app that tracks your spending, you can effectively be on top of your day-to-day spending, which can help you eliminate unnecessary spending of your capital or income in the future.
2. Open a business financial account
Small business owners may find it difficult to distinguish between spending in their personal and work lives, which can become a problem when taxes are due. You can avoid this by opening a finance account for a small business. By using the business account for all work transactions, you can get a clearer assessment of its spending. As such, your finances become more organised.
You may want to open both a business chequing and savings account. It's also beneficial to get a business credit card for small transactions that you can keep track of and reference later on when sorting the expenses for that week or month. Some credit card issuers offer great cashback rates on anything you buy and offer points that you can acquire and redeem for services like hotels and aeroplane tickets. Avoid making unnecessary purchases as you're likely to overspend and it might become more difficult to document and monitor business purchases.
3. Learn to store paper receipts efficiently
Here are some tips for keeping your paper receipts well organised:
Create a separate space for paper receipts: Devoting a distinct location for a business's paper receipts can be very helpful as it enables you to orderly curate them. Cultivate the habit of keeping these receipts in their designated space.
Use file folders: You could also make good use of file folders when you need or desire a larger curation of paper receipts over a longer period of time, such as a few months or even a year. With the aid of a filing cabinet, designate a file folder for each month that contains all expenses for that month.
Label all documentation: Always label your folders or envelopes so that you can look up and recall exactly what you spent on each occasion. This combats forgetfulness and assists you in easily finding anything you need clarification on.
Document the purpose: Writing the purpose of your purchase on paper receipts is important because it pinpoints exactly what kind of expenses you're incurring. Creating a business calendar on your phone could be helpful since it lets you cross-examine a business's paper receipts against the purchase dates.
4. Learn to store digital receipts efficiently
Some apps let you store digital receipts and you can even scan paper receipts to avoid the need to physically store them. Some applications can snap and store receipts on the cloud and add the expenses to your records automatically. This could benefit the business as the app is probably the easiest finance tracker application on the internet. After taking a photograph, the app eases you off the other procedures involved. Expense app trackers can help you learn how to adjust your spending.
5. Create a spreadsheet
This can be a good choice if you prefer a low-tech method to track business expenses and is also very effective for newer business owners. Nevertheless, the more a business advances, the more you might want to switch to a faster and more efficient way of organising its finances due to an increase in expenses over time. Developing your spreadsheet involves tracking business expenses each day as opposed to using automatic finance tracking apps.
Making your own sections and sorting them out yourself are some of the basic tasks you can expect when using this curation method. You can use Microsoft Excel or Google Sheets as they're quite easy to understand and equally easy to import into your accounting software to obtain a summary of expenditures in batches. When creating a spreadsheet in Microsoft Excel or Google Sheets, you can include these columns:
Date: The individual day and month of the purchase. The year comes after, but this might not be necessary if you've devoted each spreadsheet to a particular year.
Category: First, determine whether the expense was for business or personal use. If it was for business use, determine its category (e.g. marketing, mortgage or utilities).
Vendor: The term vendor denotes the individual or group from which you purchased the item or service. It could be an individual client or a company.
Cost: A very important component (as it comprises the final cost analysis). The cost signifies the price of the purchase.
Purpose: As the name suggests, indicate the reason for the expense. Determining the category (business or personal) falls under this area as well.
6. Use cloud accounting software
Many small businesses owners use cloud accounting software because they wish to access their financial accounting information from their phones. The advantage of having remote access to cloud accounting software is that it enables you to track expenses when you're on the road or not at the office. Having access to all your files and transactions at any time via your phone, tablet or computer can reduce stress, boost productivity and save time.
As a small business owner utilising cloud accounting software on your phone, you can instantly add to the business's expenses regardless of your location. One of the greatest advantages of cloud accounting software is its automatic connection to your bank account, such that any transaction on your credit card automatically updates the software. Instead of printing out receipts or keeping track of all the transactions you make each day, you can simply use a financial tracking app or cloud software. These are the main advantages of online transactions over cash payments.
Accounting for a small business
You might be wondering how to manage the books and accounting for a business's expenses. Here are some tips:
Choose a system: Choose a system of accounting that you prefer and stick to it. The majority of small business owners use a single-entry bookkeeping system because it's easy to learn and use.
Use software to record transactions: Recording financial information manually can be both time consuming and error-prone. Accounting software can not only be more accurate but also effective as it allows you more time to focus on other things (business or personal) while the software automatically manages your finances.
Set up your account: Although cloud software provides suggestions for transaction categories, you may want to configure these yourself to better represent a unique business. The basic accounts available for a small business include a chequing and savings account.
Separate business and personal finances: Separate your personal and business accounts as this helps you differentiate your expenses and better track the business's expenses. This allows you to connect a business account and your cloud accounting software without worrying.
Create an invoice template: Creating your invoice template occurs when you download an online template and a lot of small businesses offer credit for services hence, they send the invoice after completion of the work. It makes it evident when they pay and help you receive payment in a timely manner.
Explore more articles
- Shopper marketing: definition, tactics and examples
- Types of marketing campaign: definition and benefits
- What is corporate finance? (including 11 jobs to consider)
- What is a brand and how can you build a strong one?
- Revenue vs earnings: definitions, differences and FAQs
- What is a steering committee? (With benefits and uses)
- Your guide to postgrad degrees (with career options)
- Website flowchart: how to create one (with templates)
- How can warehouse automation streamline your operations?
- A guide to building high-performing teams (plus benefits)
- What is an augmented product? (With definitions and benefits)
- 12 remote work tools for freelancers and remote employees