Tracking business expenditure is vital to effective financial management and business success. An accurate recording of expenditures ensures that you’re prepared come tax season and that you can claim all tax-deductible expenses. It helps you become financially aware and be able to manage costs.
With monthly expense tracking, you can quickly calculate your profitability and make necessary adjustments. Another benefit is that you can promptly reimburse out-of-pocket expenses by your employees, thus keeping them happy. All of these can have a profound impact on your business bottom line.
To ensure that you have an up-to-date and effective monthly expense tracking, you need to implement the right strategies and use appropriate tools. Here are some tips to help make expense-tracking simpler and quicker.
Separate personal and business expenses
This is one of the major challenges that beset small business owners. Due to the overlapping nature of personal and business expenditure, it can be quite difficult to segregate them. However, it is important to be constantly aware of every expense so that you can claim rightful tax-deductible expenses later.
When shopping supplies, make sure you have a checklist of items, classified as a business and personal supplies. Ideally, you should request a separate receipt for all business purchases. It is recommended that you open dedicated bank accounts for business and personal purposes.
Dedicated bank account for business
Opening a separate bank account for business can help you track your business expense more easily. You can simply check the monthly bank statement and transaction history, and categorize expenses from there. This should also avoid mix up between personal and business money.
If you are using a credit card for business, you should have a dedicated credit card for business purchases. Often, it is difficult to categorize your expenses if you’re using only one credit. It is also impossible to separate purchases on a single receipt.
Connect bank to your software
Simplify your business expense tracking by connecting your bank with your software solution. While some business owners feel uncomfortable, reliable accounting software guarantees high-level security to protect your data.
By linking your bank account to your software, you can automatically access banking transactions and integrate them into your expense tracking software. This removes the need for duplicate data entry. You can also easily account for every transaction charged to your bank account.
Decide on an expense tracking method
Small businesses can monitor expenses through cash accounting or accrual method. In cash accounting method, transactions, either revenue or expense, are recorded as soon as the payment is received or made. Meanwhile, in the accrual method, transactions are recorded even if the sales or expense has not been paid for.
The cash accounting method is ideal for small businesses with limited transactions. It is straightforward and uncomplicated. The accrual method is often used by large companies that deal with multiple transactions and require continuous monitoring of the company’s financial standing.
Use accounting system
IT developers at Kansys emphasized the importance of automation in efficient monthly expenditure tracking. Enterprise software solutions can be equipped with expense monitoring capabilities. There are numerous options available nowadays – from commercial off-the-shelf software to tailor-made solutions.
If you have a limited budget, you can try free accounting applications available online. Although these IT solutions have basic features, they can prove useful. Small businesses with limited payables and transactions can also use basic spreadsheet software for recording expenses.
Consider cloud-based expense tracking software
Unlike on-premise software programs that are installed into your computer, cloud-based software apps are hosted online and can be accessed through the Internet. With a cloud-based expense tracking software, you can record and manage your expenses even while you are away from the office. For example, you can input a receipt into the system immediately upon purchase.
Cloud-based software enables you to check business costs in real-time allowing you to make timely and informed decisions. It also enables seamless collaboration as your employees can access it anytime, anywhere.
Digitize all receipts
Going over a pile of crumpled receipts can be overwhelming. To avoid this problem, you should digitize all receipts by scanning them. Once you get a receipt, take a picture using your smartphone or scan it with a standard scanner. Several mobile apps can be used for scanning documents. Alternatively, you can request for digital receipts instead of paper-based receipts.
Digitizing receipts should make it easier to retrieve, gather, and organize them come tax time. This should save you time and avoid headaches. It should also give you a clean digital record for easier accounting.
Scrutinize your travel expenses
If your business involves traveling, you need to take special note of all travels. Many small business owners overlook travel expenses that can be applied for a tax deduction. Some business trip-related costs include flight expenses, mileage, meals, accommodation, and other related costs. Record every single detail of your business trips, so you won’t miss out on any of these costs.
Record expenses right away
Lastly, record every expense as soon as it is incurred. Don’t wait for your receipts to pile up or for the end-of-month before you record them. Procrastination can only complicate things. You might also lose the receipts and render it impossible to reimburse or include them in your tax deductions. The use of software solutions proves useful in real-time tracking of expenses. You and your employees can immediately input the transaction into the software. This ensures timely updating of records.
Monthly expense tracking can be a tedious task that entails a lot of discipline. But it is a necessary task that can save you headaches and trouble in the long run. While it might seem mundane and unimportant, expenditure monitoring is something that you need to take seriously if you want your business to succeed. Follow the tips discussed above to make things easier.