Expense tracking helps small business owners keep an eye on where their money is going throughout the year. This helps reduce surprises come tax season and allows them to stay financially aware.
Luckily, there are many great apps and software that can help streamline this process. Several of these programs also offer the option to connect your financial institutions and make tracking expenses even easier.
1. Set up an organized system
Small business owners need to track expenses and maintain an organized record of all transactions. Whether you’re filing taxes or doing regular bookkeeping, a well-maintained transaction record can help you understand where your money is going and make informed financial decisions. In addition, categorizing expense types can help you identify tax-deductible items and make filing your taxes easier.
Properly tracking and documenting small business expenses helps you avoid costly mistakes during tax season and ensures your business is accurately reporting its revenue. It can also help you better manage cash flow and make informed financial decisions that can improve the long-term sustainability of your business.
Efficient and consistent bookkeeping can save you time, money, and stress in the long run. By following these simple tips, you can set up a system for small business expense tracking that will make your day-to-day and month-to-month management processes much easier and more effective. It’s crucial to find a solution that can scale to meet the needs of your growing team and expanding list of expenses.
2. Connect your financial institutions
As a small business owner, it’s crucial to track expenses on a regular basis. This provides insight into how much you are spending and what you’re spending money on so that you can stay within your budget.
Having a separate bank account for your business and a dedicated credit card is a good best practice to keep personal and business expenses separated. This makes tax time easier and helps you spot fraud faster.
Business expense tracking apps are a convenient way to stay organized and save time. Many of these apps connect directly to your bank accounts, making it easy for you to automate and track expenses on the go.
A few popular small business expense tracking apps include Certify, Freshbooks, and Pleo. These services vary in price but all provide a range of valuable features including receipt scanning, mobile accounting, and reporting. Many offer a free trial so you can try before you buy.
3. Create an expense spreadsheet
There are many options for recording and categorizing small business expenses. Many advanced software solutions provide a robust set of features that can help you reduce costs and streamline your record-keeping process. These tools are also helpful for analyzing your financial health and guiding decision-making. However, these solutions can be expensive and may require a significant investment of time.
For small business owners that don’t have the budget to invest in costly expense management software, an Excel spreadsheet can be a practical solution. This type of spreadsheet can be easily customized to fit your business needs. For example, you can include columns for payment method, project number, and service types. You can even add formulas to tally totals automatically.
In addition, the spreadsheet can be shared to enable real-time collaboration, which is especially useful for small businesses that need to work with outside consultants or accountants. Additionally, you can use a cloud-based platform like Google Sheets to ensure that your expense records are always accessible and up-to-date.
4. Create an expense report
While there is no one-size-fits-all method for tracking expenses, businesses can follow a few best practices. For example, limit all business spending to a dedicated account to keep company finances separate from personal ones and make it easier to track spend. It’s also a good idea to make it company policy that employees submit receipts for all expenses to help verify legitimacy and prevent fraud. This will allow the business to refute questionable expenses and spot spending trends.
Small businesses can use expense spreadsheet templates to easily categorize expenses and calculate total reimbursements. However, they may want to consider using an expense app that makes the process faster and more efficient and provides curated real-time reports and custom dashboards for different stakeholders.
In addition to using a standard format, small businesses should also include common expense categories such as lodging, travel, meals, supplies and miscellaneous. This makes it easy for employees to identify what expenditures are valid and taxable, which can save the company money at tax time.
