Effective Ways to Manage Business Expenses for Small Business Owners

Managing business expenses can help small business owners maximize their tax deductions and have a better cash flow. It also makes tax time a lot simpler as many expenses can be claimed as write-offs. If you manage your business expenses on a regular basis, you’re less likely to miss potential deductions, meaning you’ll pay less at tax time (or even get more back).

This article will explain which expenses you need to pay close attention to, the importance of managing your business expenses properly, and suggest effective ways to stay on top of your business expenses. 

What are business expenses?

As a business owner, understanding all types of business expenses will help you manage the business most optimally. Business expenses refer to all expenses involved in the normal course of operating a business. 

Various types of expenses arise within both small and large organizations. The income statement includes business expenses. To calculate a corporation’s chargeable operating earnings, business expenses are reduced from revenue on the income statement.

There are some common categories of business expenses, such as: 

  • Fixed expenses  are those that don’t vary from month to month. Loan payments, maintenance, healthcare insurance, wages, and rent are examples of these. While many of these costs may fluctuate over time, they are typically persistent for the entire length of a lease, negotiation, or signed agreement.
  • Variable expenses are the opposite of fixed expenses, essentially non-fixed costs. Although the overall costsvary with each billing cycle, they are required spending. This category typically includes utilities. Other variable expenses include inventory, commissions, and credit card fees.
  • Fixed and fluctuating period expenses might be constant or variable, and they are incurred on a regular basis rather than per transaction. Mortgages (or rent) are examples of fixed period costs, whereas utilities and insurance are examples of fluctuating period expenses.
  • Interest expenses can be either fixed or variable. Many interest fees comes with period expenses, however, credit card expenditures for traveling personnel can be charged per transaction. Interest deserves its own category because it tells you how much money you’re spending on your borrowing component of the budget.
  • Depreciation is often a fixed expense, but it is also worth investigating. Depreciation is essential to determine the ROI of replacing large items. It’s also usually tax-deductible, thus it should always be considered.

Each month, you estimate variable expenses, but the total figure will change. Monitoring your business expenses allows you to more effectively evaluate which financial decisions you’ll make. 

The importance of managing business expenses

Controlling your business expenses can simplify tax season because many expenses can be claimed as write-offs. If you keep track of your spending regularly, you’re less likely to overlook potential deductions. This implies you’ll have to pay less in taxes (or get more back).

Along with claiming tax deductions, there are other advantages to tracking business expenses. When business owners correctly analyze their spending, they can better understand cash flow, one of the most important variables in a business’s operations.

Furthermore, accurately managing business expenses enables business owners to measure how well their company is doing by highlighting the profit margin. It can also provide a transparent financial record to investors, increasing the probability that a business will be able to acquire the money it requires to grow. These insights into your business are invaluable, so making the effort to manage expenses well will pay off.

Effective ways to manage business expenses for small business owners

1. Open a business bank account

Setting up an independent bank account for company expenses makes it easier to keep track of them and collect them as tax deductions later. Business bank accounts also provide financial liability insurance by keeping business and personal funds distinct. And last but not least, using a business bank account to receive credit and debit card payments from customers can build customers’ trust in your business. 

2. Use a dedicated business credit card

With a specific business credit card, the company can build a credit history to acquire financing (and the best financing terms) when needed. 

Possessing credit also allows the company to make large purchases when it’s just getting started. Not unexpectedly, available credit is a measure of successful financial health. 

manage business expenses tips

Credit cards assist businesses in negotiating advantageous contracts with suppliers and help safeguard firms from identity theft. Credit cards often provide benefits for businesses, such as business incentives, cashback on purchase, or travel rewards. 

3. Record all business expenses promptly

  • Choose cloud accounting software to automate record-keeping and track expenses in one spot.

Using good accounting software allows business owners to designate particular line items by expense category, such as personal expense, entertainment expense, meal expense, travel expense, capital expenses, and other tags. By doing this, you can easily differentiate expenditures from deductible charges. This not only helps with reporting at the end of the tax year but enables you to review business spending on a granular level and discover where you might be able to save money.

Cloud accounting software is even more efficient ? it allows you to track, manage, and update your business expenses on the go. This is a huge plus for busy entrepreneurs and business owners as they can access a network of information within a touch.

  • Connect your bank account to your accounting software to import transactions

When you link your financial institution to your accounting software, your transactions are immediately imported as they occur. Using accounting software with this feature will make tracking and managing your costs much easier.

You’ll be less concerned about missing a transaction with automatic importation, especially if you use a separate bank account and cards for business expenses. Every time you log in, all of your new spending will appear under your transactions, and it will be up to you to appropriately categorize them and link them to their related receipts. This reduces the amount of time you’ll need to spend on bookkeeping and ensures that nothing is overlooked.

  • Keep track of your receipts

Receipts are required for tax purposes. Receipts are proof of major purchases that you want to claim as work-related costs, so it’s critical to have a system in place to record these. Keeping your receipts organized is essential for running a successful business and tax preparation.

We have already published an article on the best ways to store your receipts. In case you haven’t already seen it before, take a moment to discover Shoeboxed‘s suggestions on the most effective ways to keep your receipts organized! 

4. Digitize receipts with a receipt scanner

As you may be aware, sitting down at tax time with piles of paper receipts on your desk can be stressful. It can be difficult to determine which receipt corresponds to which expense (especially if you have personal and company purchases on the same receipt) because ink fades and receipts become more difficult to read with time.

By digitally collecting and filing your receipts as you go, you’ll save yourself energy and problems. When you make company expenses, make a habit of quickly photographing them with a receipt scanner to turn them into digital data. Your receipts will then be saved in a cloud system for years, completely safe from damage, destruction, or loss. 

scan receipts manage business expenses

Shoeboxed is the painless receipt tracking and expenses managing solution for freelance accountants, small- and medium-sized business owners, especially for those who are willing to spend a little more to be “audit-ready.” This app doubles as a receipt scanner and organizer, making it the most versatile choice to keep track and manage business expenses on the go. You can either scan paper receipts with your smartphone or mail your receipts to a Shoeboxed facility to have them scanned and organized. 

Shoeboxed‘s OCR engine and human data verification features ensure that the digital versions of your receipts are scanned in precise format, well categorized, and legibly approved by both the Internal Revenue Service and the Canada Revenue Service in the event of an audit. Additionally, Shoeboxed offers mileage tracking and business card storing features, making it a one-touch app to access all your business’s important information. 

5. Review and categorize expenses regularly

Managing business expenses properly is a critical first step toward having the necessary data for better short-term management. It also improves long-term decision-making that will benefit employees, customers, and the company as a whole. The more often you review your numbers, the better you understand them, and the more likely it is to grow your business. 

It’s a good idea to develop the habit of evaluating your expenses on a regular basis (maybe as part of your weekly review). This ensures that your transactions are appropriately classified, and your reporting remains accurate. 

If you’d like to explore more helpful tools, tips, and tricks for tracking business expenses, take a look at this article: How To Track Business Expenses: 15 Best Tips & Tools.

The bottom line

If you’re just starting a business or planning to expand in the near future, you must keep detailed and accurate records of your business spending. It will not only help you maintain a healthy cash flow and lower your taxable income, but it will also support you in growing your business.

Try Shoeboxed today to see how we can assist you in managing your business expenses and maximizing your business efficiency! 

Don’t forget to subscribe to the Shoeboxed blog to see how we have helped our clients in managing their business finance, together with engaging success stories, entrepreneurship, DIY accounting, and the latest Shoeboxed product update. 

5 Good Financial Habits to Build in 2022

If you’re looking for the key to financial success, then we have the answer: financial habits ? good financial habits to be exact. Financial habits are the values, standards, routine practices, and rules people rely on to handle their day-to-day financial lives. They help you manage your money properly and respond quickly to financial decisions or issues.

If you want to know how to manage your finances more wisely, read on to find five good financial habits to build in 2022. 

1. Review and update a financial plan regularly

The first thing to consider when building good financial habits is a financial plan. It’s a document that contains information on an individual’s present financial situation, long-term monetary goals, as well as strategies to achieve those goals.

Your financial plan helps you assess, plan, and improve your present and future financial situations. It provides a snapshot of your present finance and your goals to develop an action plan that you can use to navigate financial decisions with ease.

Creating a financial plan, though, isn’t enough. It’s fairly important, if not more important, to evaluate and update your plan on a regular basis. 

A regular check at least once a month is a must to make the most out of your plan and enhance the chances of reaching your goals. It’s also recommended to update any important information at least every three to six months. It’s also important to update your plan when a major life event occurs, such as buying a new house, getting married, or finding a new job.

2. Set financial goals 

The most crucial step toward financial success is to set goals. You will not be able to measure your progress unless you have goals. When forming goals, it’s recommended to follow the “S.M.A.R.T” goals strategy: specific, measurable, achievable, relevant, and time-bound.

Here are a few examples of SMART financial goals: 

  • Pay off $20,000 of debt in 6 months 
  • Create a $15,000 saving account this year
  • Buy a $100,000 property in 7 years 

As you can see, these examples closely follow SMART principles, with each goal being measurable and time-bound. As a result, you can easily keep track of your progress and be able to reach your goals within the expected time. The SMART principle is specifically useful for making a goal as it points out any relevant factors associated with your goals. For example, a SMART goal “Pay off $20,000 of debt in 6 months” is definitely more powerful than a vague goal such as “pay off debt soon.”

3. Create a budget

Making a budget is another good financial habit to build because it ensures you’ll be spending money efficiently and not spending more than you can afford. A personal budget lets you know how much money is going in and coming out of your account every month. Without it, you may be spending more than you make — leading to a paycheck-to-paycheck lifestyle. 

When making your budget, keep in mind to include the amount of money you bring in every month from your paycheck, the money you typically spend on “needs” such as living expenses and groceries, and the expenses you allocate for “wants” like eating out, travel and shopping.

If you’re not sure where to start, consider these budgeting tips to help you get started.

4. Utilize an expense tracking app

A budget lets you know how much money you’ll get and spend each month. An expense tracking app, on the other hand, allows you to compare if the amount of money you expected to use is lower, higher or equal to what you actually spend.

Expense tracking apps are becoming more popular and are likely to completely replace manual expense tracking. It’s because by using an expense tracking app, you can improve productivity and reduce paper waste. Moreover, with expense tracking apps, you can scan and store your receipts on the cloud, which is more secure than keeping them in the physical form.

If this sounds like just what you need, start using an expense tracking app now! Shoeboxed is an expense tracking app that lets you turn your receipts into data and then organize, make reports and analyze your current financial position at any time and anywhere. It’s an ideal tool for individuals and businesses. Check out Shoeboxed and start your free trial today!

5. Build an emergency fund

In contrast to fixed expenses that recur every month with an amount you can anticipate and set aside, there are also unexpected expenses. This type of expense sometimes is impossible to foresee. For example, a leaking roof, a broken dishwasher, or even a surgery for your pet are situations when you have to let your money come out of your pocket without planning for it.

That’s why you have to build an emergency fund. An emergency fund is a safety net that ensures you don’t have to delve into other cash set aside for everyday needs. If you don’t have one, chances are you’ll have to “touch” the money set aside for credit cards or other bills to cover the emergency expense. 

Experts recommend creating an emergency fund that covers three to six months of living expenses. This is especially true if you only have one source of income. 

If you haven’t started working towards this financial habit, start putting money aside for emergencies, even if it’s just a tiny amount from each paycheck. You’ll be grateful in the long run!

The bottom line

There are many good financial habits you can start adopting this year. Some can be easy — like reviewing and updating your financial plan regularly while others are more demanding. And if you’re new to working towards these habits, it can be a little time-consuming and laborious. But it’ll pay off in the long run. 

If you’re interested in entrepreneurship stories, business tips, or productivity tools, find more posts like this on the Shoeboxed Blog. Shoeboxed is a cloud-based software that helps individuals and businesses turn their massive paper receipts into digital data. With Shoeboxed, you can accomplish a variety of tasks: scan, store and organize receipts, manage expenses, store business cards and even track mileage for business travelers. It’s simple to install and easy to use. Try Shoeboxed today!

What is a Bank Transaction Receipt and its Benefits for Your Business

Whenever you visit a bank and make a monetary transaction, such as a deposit or withdrawal, the bank will provide you with a bank transaction receipt. This is how banks keep an accurate and up-to-date record of all financial transactions conducted at a given location by various account holders. 

Since this financial term is used in many situations in daily life, it’s good to have a basic understanding of bank transaction receipts and how your business can benefit from them. 

What is a bank transaction receipt?

A bank transaction receipt (also known as a bank receipt) is a standard form of documentation for most financial transactions. Customers who go to banks or other financial institutions to conduct any monetary transactions should expect to receive a bank receipt for these transactions. 

Besides transactions involving deposit accounts, these receipts are also sent to customers who make loan payments, credit card payments, and conduct other similar types of transactions. Bank transaction receipts are also given to businesses that conduct financial transactions at a given bank or financial institution. 

Banks also keep their own copies of bank transaction receipts. This ensures thorough record-keeping for all financial transactions for each of their various account holders. These receipts are also a form of collateral. If a customer makes a request, the bank will have a detailed record of the transaction to refer back to. Whether a bank employee makes an error or an account holder miscalculates a portion of the transaction, bank transaction receipts make it much easier to resolve disputes. 

In the past, bank transaction receipts were paper slips. However, in recent years, many banks have begun to offer digital copies of receipts (by email,  text message, or other methods). 

Using digital receipts rather than paper receipts enables the bank to save on printing costs. Digital receipts also provide convenience for account holders as they no longer have to keep track of numerous paper receipts. 

Bank transaction receipt details

A bank transaction receipt contains detailed information about a financial transaction conducted at a particular bank. The form of the receipt may vary by bank or institution, but all bank transaction receipts must include these essential details: 

  • Bank account numbers
  • Account holder name(s)
  • Date of transaction
  • The total amount of the transaction

Sometimes a bank transaction receipt will even include detailed information such as the employee number of the bank employee who conducted your transaction. 

How to use bank transaction receipts for bookkeeping

Given the importance of bank receipts to businesses, you can make use of these documents and turn them into a helpful tool for your bookkeeping practices, either for personal or business expenses. In fact, many banks and other financial institutions recommend balancing your account books on a monthly basis and referring to your bank transaction receipts throughout the process. It’s common to go over monthly bank statements and cross-check this information with all of your bank transaction receipts that you have collected for a given month. 

Even if you hire a professional accountant to track your personal or business finances, they will request a copy of your bank transaction receipts. Bookkeepers use this information to track your income, expenses, and other financial transactions impacting your cash flow. This financial data helps keep an accurate and real-time record of your financial activities. 

Bookkeepers also use bank transaction receipts for data entry purposes to track your credit card payments, which can help you control your spending. Bank transaction receipts can even help you improve your credit score over time with good bookkeeping practices

Some people prefer to use receipt tracking mobile apps that automatically track this information in real-time instead of working with an accountant. You’ll no longer have to keep a hard copy of your bank transaction receipts by using mobile apps, as this information is readily available on your mobile device. You only need to make sure that you store these physical copies of your bank receipts before uploading them into a cloud-based system. After scanning your documents with a versatile mobile app, you can free your desk and drawers from piles of paper receipts and keep them for years!

See more: 5 Best Receipt Scanner and Organizer Apps for Small Businesses in 2021.

How to use bank transaction receipts for taxes

Bank transaction receipts can be very beneficial when preparing for tax season. To work on the tax reduction process, first, you need to collect all proof of purchases for your business expenses. Next, you need to find the right tax form and fill in all the details. The last step is to submit the form and then you’re good to go. 

Business owners can use their bank transaction receipts to balance their accounts. You can do this by reviewing the monthly bank statement and comparing the amount and transaction dates of items listed on the statement with their bank receipts. 

Typically, businesses will keep their bank receipts until the end of the year for tax preparation purposes. Individuals who claim tax deductions for certain types of expenses must also keep copies of bank transaction receipts to prove that they qualify for deductions related to banking transactions, such as interest charges or mortgages.

The bottom line

Bank transaction receipts, along with business plans, marketing strategies, and financial reports, are essential documents for all businesses. Keeping and managing these documents properly can help track your business’s financial performance, solve disputes, keep the bookkeeping up to date and even claim tax deductions with ease. A simple yet effective way to achieve this is to digitally scan and store your important documents. 

Shoeboxed is a painless receipt-scanning and organizing solution for freelancers and small business owners. After scanning your receipts with the Shoeboxed app, our OCR engine will automatically extract the most important data points and automatically categorize them by vendor, total spent, date, and payment type. After that, our staff will double-check to ensure that all of your data is human-verified, categorized, organized, fully searchable, and available on any device. Shoeboxed keeps your bank transaction receipts in a safe place with high accessibility. 

See also: How To Scan A Receipt Digitally With The Shoeboxed App.

The Shoeboxed app is available on iOS and Android. You can try Shoeboxed for free before choosing the perfect plan for your purposes!