You can’t run a business without spending money. No matter which industry you’re in, expenses come up.
Some expenses are inevitable, but they are not always necessary and don’t always benefit your bottom line.
One way to find out if they do is to meticulously track your business expenditures. Although this process can be complicated and time-consuming, it doesn’t have to be.
In this guide, you will find the best 15 tips & tools to simplify and improve your expense tracking systems.
How to track business expenses guide
What are business expenses?
Business expenses are the money you spend on running your business. Salaries, inventory, equipment rentals, or phone and Internet fees are all business expenses.
Companies have to show their expense details in a statement of profit or loss. In other words, they are a deciding factor in determining your net income and taxes. Mistakes made while recording expenses could lead to serious consequences.
Why tracking your business expenses?
Being aware of your spending is one of the most effective ways to manage finances. Knowing how to track business expenses gives you an insight into what brings results and what doesn’t. Additionally, keeping a close eye on expenses can help your business:
Prepare for tax time
Tax season – these two words can be a nightmare for many business owners. However, a good system of how to to track business expenses can reduce a vast amount of work going over receipts and bills come tax time. More importantly, many business expenses are tax-deductible. Incomplete and poorly categorized expenses could make you overlook potential deductions. This means you’d be paying more taxes than necessary.
In other words, monitoring your expenses closely can help you save both time & money and be ready and prepared for tax season.
Stick to your budget
If you have a monthly budget, learning how to track business expenses is essential to keep you within your financial limits. It lets you know if you’ve been over or under-spending, and more importantly what causes the differences. You then can easily come up with solutions to cut or reallocate resources for better results.
Improve internal control
A lot of business expenses are produced by employees. Tracking this spending by keeping receipts or bills can give business owners an overview of why the costs were incurred and by whom. Being aware of how to track business expenses not only prevents fraud like faking numbers, but also helps companies become more proactive in internal control.
10 best tips to track business expenses
Knowing how frustrating it can be to keep track of all expense records, we’ve listed 10 helpful tips on how to track business expenses that make the process easier.
1. Keep business and personal expenses separately
It’s important to keep your expenses separate from business-related ones.
However, some freelancers or small business owners neglect this and claim it all as an expense. This mindset would cost time and money. Especially during tax season, when you eventually have to distinguish the expenses for tax returns and any mistakes could draw attention from the IRS for an audit. So the simplest way to avoid lots of hassle is to record these two types of expenses separately.
2. Get a business credit card
Get a dedicated business credit card if you’re struggling with separating your personal spending from business expenses. It will simplify the process of tracking your expenses by digitally storing all of your transactions. You can quickly verify the money going out and into your business by looking through the credit card history. Additionally, credit card providers also offer rewards such as travel packages or discount vouchers for businesses.
3. Keep receipts organized
Properly storing your receipts helps keep essential financial records in order while also taking away the fear and stress of tax preparation.
Keeping your receipts organized also eases the auditing process and enhances the accuracy of your accounting.
Folders, files, and storage cabinets are great ways to store and keep your receipts accessible. You should also label and sort them into different categories. It’s also helpful to set up a weekly or biweekly check to organize the receipts.
Yet, the best way is to digitize paper receipts. You can use software like Shoeboxed to scan and store all your receipts in the cloud. Shoeboxed can also automatically categorize and extract necessary data, making your life much easier.
4. Record expenses promptly
Make sure to keep track of your spending as soon as possible. Make it a habit, too. It will save you time in the long run since you won’t have to deal with paper clutter later.
You don’t want to go through your company credit card and discover transactions that you don’t remember making. This also reduces the risk of forgetting or losing expense records.
5. Use an expense spreadsheet
If you’ve started your business and know how to track business expenses without using an expense tracker apps or accounting software, consider making a spreadsheet to keep track of your expenses manually. You can make it on free programs like Excel or Google Sheets.
In this case, you can design the spreadsheet template based on the nature of your business. Here is a basic example of using a spreadsheet to record expenses:
|10.9.2021||Advertising & Marketing||$10||Promotion for a new post||Credit card|
You can add any relevant columns or categories to match your business model.
6. Hire a bookkeeper
When you don’t have accounting skills or simply just don’t want to deal with the hassle, employing a bookkeeper can be handy. The bookkeeper will take care of all of your financial records, including expenses. They can also give you professional advice on how to optimize profit and cut unnecessary expenses.
7. Integrate your software
Many businesses choose tools or software to automate as many daily tasks as possible. This sometimes leads to various databases, and you have to manually insert or move data for different jobs and processes. It’s reported that 40% of productivity is lost to multitasking and task-switching. After all, it’d defeat the original purpose: automation.
That’s why you should use software that can integrate with the others already working in your system. For example, if you’re looking for a receipt scanning tool, use one that links with your accounting software. It optimizes time, increases productivity, and centralizes work.
8. Clearly categorize your expenses
Some of the most common expense categories include utilities, travel, office supplies, and rental expenses. However, every business has different types of costs. Breaking down expenses and classifying them can help you understand and manage your company’s spending habits better.
We recommend you follow the categories listed in the Schedule C form from the IRS if you run a sole proprietorship. Developing categories that match your business and a tax return file can make the tax filing process more straightforward and smoother and ensure you get all the deductions you are entitled to.
9. Have a backup of expense records
Things can go wrong at any time, no matter how strong your internal system is. You may face problems like vital financial records missing, damaged files, or accidental deletion of data.
To avoid such issues, keep a backup of all expense transactions. You may physically maintain a backup by making extra copies for essential contracts or files. However, it’s best to store backup data on a cloud which can be from your software/tools or popular free files storage like Google Drive, Dropbox, etc.
10. Review your performance frequently
Tracking expenses only is not enough. You should often review the process to see if the system is functioning well or not and what needs changing. This will also reduce the risk of bounced checks or unpaid invoices. By going over your expenses, you can identify unnecessary costs that should be cut.
Top 5 tools to track business expenses
Software automation is an investment. Pure and simple. Technology has made it essential that businesses eliminate manual, repetitive tasks to focus more on profit-driving sectors.
In accounting, almost 75% of tasks can be automated with software or tools. In other words, there are many apps available to speed up your accounting workflow. However, not all of them are good.
We’ve listed below 5 of the best software to streamline your tracking expenses process:
Excel has been with businesses forever. It’s a good old-fashioned method to record and manage business expenses. You can find plenty of Excel bookkeeping templates on the Internet. Choose the right one for you and insert all expenses weekly.
The best thing about Excel is that it’s free. If you’re a freelancer or start-up owner, Excel will be an ideal choice to save costs. However, you’d still need to manually put in data, categorize receipts, and so on.
Though it doesn’t help you automate much, Excel is still an excellent tool to organize and record your business spendings.
QuickBooks is a household brand when it comes to accounting software applications for SMEs. It allows you to issue invoices, monitor cash flow, track profit & loss, and control payroll. Basically, Quickbooks can handle all of your finances.
It’d be a bit challenging to take advantage of all its features when you’re unfamiliar with accounting. But you can always learn! Countless tutorial online videos can instruct you step by step to make use of the software.
In the event that you’re only looking for an app specifying tracking expenses, Quickbooks may not be the best choice. You might end up paying a large sum of money for little use.
Xero is an alternative to Quickbooks. Employees can capture receipts on their mobile devices using the Xero expense claims app and submit their work expense claims. It also can assign staff a specific user permission so you can decide whether they have access to submit claims, approve claims, or both. Besides expenditure tracking, Xero offers many other capabilities like cash flow tracking, payment processing, bank reconciliation, inventory management, and financial reporting. Xero is easy to use for non-accountants.
One downside of Xero is that most of their plans don’t include this function, so you may need to add it as an optional extra. If you’re adding it as an extra, you may have to pay an additional monthly fee.
Bench can take care of your bookkeeping, importing, reviewing, and categorizing your expenses every month. They provide you with a dedicated bookkeeper supported by a team of knowledgeable small business experts. It’s a huge relief come tax season and makes the process of filing easy!
However, Bench limits the number of financial accounts you can have and operates on proprietary software that doesn’t sync with other popular accounting software. That’s why Bench may not be a good fit for businesses that need to expand or transfer providers in the future. Plus, it’s pretty pricey compared to other bookkeeping tools in the market.
If you don’t want to install a professional accounting application just to simplify your expense tracking process, Shoeboxed is perfect for you.
Receipt management is vital in managing expenses. Shoeboxed helps you transform stacks of receipts paper into digital and categorized data in just one click. Your data then will be easy to search and stored in a secure cloud. Shoeboxed also integrates with almost all popular accounting software.
The most significant advantage of Shoeboxed is the human-verified data feature. Wrinkles on the paper, faded print, or damaged receipts can make it really difficult for AI technology to read receipts, leading to inaccurate extracted data.
With Shoeboxed, every receipt is scanned thoroughly by a team of data experts to verify and make necessary corrections.
Say goodbye to manual entry, missing receipts, and erroneous data with the help of Shoeboxed!
Tracking expenses can help you improve the overall financial performance of your business.
It improves your money management, makes you more aware of your spending, and allows you to cut costs and save money.
Complete and accurate expenses records provide vital data on your finances and drive you to make better decisions for the future growth of your business. It also prepares you for tax season with accurate financial statements, reducing stress and saving time when dealing with the IRS.
You can choose to track your expenses manually or invest in reliable, time-saving tools and services like Shoeboxed to smoothen the entire process, saving you time and giving you peace of mind.