Do you want to keep track of your expenses but lack the know-how and tools? If YES, here are 17 helpful tips on how to track your business expenses for free.
No matter what type of business you run or operate, you will inevitably carry it. Expense form or other. How much money a business spends and how it spends will always play a big role in determining whether or not a business will be successful.
In order for a business that spends a lot of money on expenses to stay afloat, it must be able to generate profit. Companies that incur high costs in the course of their business operations, but do not make large profits, will certainly decline over time.
Since all businesses must strive to maintain a balance between the benefits they receive and the costs they spend, it is imperative to continually assess costs. Estimating these costs allows business owners to determine where they are spending the most money and identify ways to minimize costs. Style
By reducing the amount a business spends, it can increase its profits. But before estimating business expenses, business owners need to properly track business expenses. There are different methods you can use to track your business expenses. Some of the more popular methods of tracking business expenses include using paper documents, spreadsheets, and software systems.
The method you choose may be based on your personal preferences or the type and size of the business involved. Each of these methods focuses on organizing business expenses into specific categories and regularly updating the amounts spent in each to determine the overall business expenses of the business. Here are a few other reasons why you should regularly track your business expenses.
4 reasons why you should be tracking your business expenses starting today
a, Better knowledge of finance and cash management . One of the most common reasons most businesses fail is a lack of money. Since cash flow is so important to the survival of a business, it makes sense that a smart business man or woman will do whatever it takes to prevent his business from falling into the trap of is it too little?
One way to do this is to manage the day-to-day expenses, so you don’t go to the end of the month and find that the expenses have exceeded the income.
By tracking your business expenses, you can better control your expenses, know exactly what you are spending and how much they are worth. you. These daily numbers become your marker to see if you are going over your monthly budget or not. The whole process helps you become more financially aware. With this data, you can spot and correct bad spending habits early on, before they get out of hand.
Not only will you save money, which will have a positive impact on your bottom line, but you will also free up money that you can invest in other important areas of your business, such as marketing.
b. You are better prepared for tax season and can get your money back: Tax season can be quite difficult, especially if you are not prepared enough; In fact, it can be scary: Business owners often scramble to try and collect all the necessary bills and receipts on their laptops and shoeboxes.
But you don’t have to go through it. By keeping proper records, you’ll always be ready for the next tax season. Don’t run, be nervous, or worry about losing money. You see, a lot of the expenses are tax deductible, which means you can get your money back. These costs include:
- lunches and business meetings
- cell phone and data charges
- travel costs, such as fuel to attend a meeting with a client
- Office supplies such as stationery.
- Rental fees
- Home office expenses : If you have a home office, you may be eligible for a home office write-off. For example, if your home office is 20% of the size, you can claim a 20% rebate on utilities, maintenance, etc.
But you can only get your money back if you track, categorize, and disclose these business expenses. Not keeping accurate records means you are leaving your hard-earned money on the desk and in the hands of the tax official.
vs. Happier employees: If you manage a team of employees, they’re more likely to send you receipts for travel, meals, and other personal expenses. By tracking these expenses, you can reimburse your employees on time, reimburse your employees for their money makes them happy, and prevents them from remembering expenses that were filed some time ago.
re. Ease of Determining Profitability: Almost all business owners know how to calculate profitability (income minus expenses). Profitability tells you how well your business is performing, it also helps attract investors, fund your day-to-day operations, and secure financing.
The importance of profitability cannot be overstated, but ironically, many business owners have misunderstood it very badly. This is usually due to the fact that they are unable to accurately track their income and expenses, making it difficult for them to really know where they are.
Fortunately, by tracking expenses often, you can quickly determine your profitability without having to understand it. records.
Regularly tracking selling expenses will also prevent you from making educated guesses about profitability. Many businesses make this mistake: When they see sales coming in, they mistakenly believe their business is more profitable than it actually is.
With that in mind, here are some ways a business can track its spending;
4 affordable but very effective ways to track your business expenses
I. Ledger: Some business owners still prefer an outdated pen and paper to keep track of their expenses; However, records can only be managed for small businesses like sole proprietorships, no employees, or a lot of complex transactions, so keeping track of your expenses is just as easy. how to write them in the field daily or once a week. …
At tax time, add up each category of expenses and enter them on Schedule C of your income tax return. In a large business, you will need to go for something more efficient in order to properly cover your expenses.
ii. Software and Spreadsheets: Computer software makes it easy to keep track of business expenses. For example, software such as QuickBooks lets you categorize expenses, record all expenses, and tag them with the appropriate category.
You can also create reports to track expenses in different categories. The software is more efficient than the manual and the paperwork and makes tax preparation easier because the computer tracks expenses and adds them for you. You should back up your software daily to avoid losing your business records.
Business owners can also track business expenses using spreadsheets. Spreadsheets and software use computerized journals to keep track of expenses similar to paper journals. Many companies prefer to use this method when tracking expenses because it requires less storage space and the records can be accessed from virtually anywhere at any time.
Using this method can also make it easier to organize sales expense categories and maintain totals. The most common business expense categories included in software tracking systems include rent, utilities, travel expenses, customer entertainment, payroll, taxes, and supplies. Small business expense tracking software automatically calculates costs as you enter them, saving you a lot of time compared to other methods.
iii. Receipts: Your expense reports, whether saved or entered into a computer, are only part of the documentation required to pay business taxes. You should also keep receipts for your expenses. For a small business with few checks, an accordion-style file with labels for various expense categories such as advertising, stationery, postage, etc. will work fine. For a large business, filing cabinets can work. After recording the expense, file the receipt in the file or the appropriate section of your accordion file.
iv. Mileage. If you use your personal vehicle for your business, you can charge a flat rate for every mile driven for business purposes, such as calling customers or going to an office supply store to pick up printer cartridges. To do this, you must keep a mileage log in your vehicle and record the start and end miles of each trip, as well as the purpose of the trip. This makes it easier to accumulate your business miles at the end of the year, but also serves as documentation to justify your mileage deduction with the IRS.
How to Track Business Expenses 17 Helpful Tips
1. Create a Business Bank Account: Many sole proprietors do not see the need to separate their business and personal accounts. If you have a similar mindset, now is the time to give up and open a business bank account. Always check to see if your business income goes to your business account and use a business loan or checking account for any business related purchases that can be paid by card.
If so, you can transfer funds between the two accounts, but a clear distinction between the two accounts will help you easily track your business and personal expenses. Setting up a business bank account will also create your business loan, which is handy if you need financing in the future.
It is also a good idea to get a credit card designed for business use. Indeed, it will be easier for you to systematically organize your expenses with a dedicated bank card. It should also be more convenient than carrying cash, as most retailers now accept credit cards for small transactions.
2. Don’t give up on your receipts. Don’t just throw away receipts, but when you get receipts for purchases related to your business, put them in envelopes or a drawer, then put them in a filing cabinet organized by month. If you have been audited, you may need these receipts as proof of your business purchases.
It is very helpful to keep copies of expense receipts when filing income tax returns. Of course, the IRS does not require receipts for business expenses that do not exceed $ 75, but it is recommended (especially for small businesses) to keep sales receipts to effectively track business expenses. business.
3. Use an online calendar to record your expenses as they occur : An online calendar tool like Google Calendar can be a very valuable tool for setting up recurring or one-time expense notifications. Use the event form to record the type of expense (eg utilities, rent, contractor services) and the recipient of funds. These calendars can also be used to set up alerts to remind you to pay for upcoming expenses before they occur, and you can print the entire calendar for reference when the next fiscal period arrives.
4. Use software to track and analyze your business purchases. Most accounting software allows you to create expense categories and link them to similar items in your tax forms, reducing the time you spend preparing tax returns. These programs can also be used to generate income statements so that you can easily assess your financial situation. your company. Using business expense tracking software will save you a lot of time when tax season arrives and you need to file your taxes.
5. Hire an Accountant: If you notice that your business is growing and expenses are getting complicated, you should consider hiring an accountant to help you go through your receipts and invoices and track them multiple times in accounting software. . hours each month. Usually, accountants charge $ 20- $ 50 per hour for their services, which is well worth it.
6. Get Help : If you’ve just started your business and are having trouble keeping track of your expenses, you should seek help so you can get started on the right foot.
7. Be aware of paper documents . To deduct most of your expenses, you need to keep track of purchases such as receipts, canceled checks, or invoices. Spend time at the end of the week entering receipts or uploading them from your bank’s website or credit card into your accounting program. Always classify expenses like advertising, utilities, office supplies, etc.
8.Cut the excess: If your expenses are over budget, you know you need to sit down and take precautions. Look at each of your expenses to see where you could cut.
9. Don’t forget your car: Track your mileage and other related costs separately and update it regularly. Don’t just keep track of how many kilometers you have driven from point A to point B, but make sure to record your mileage as well.
10. Use accounting software : With accounting software, you can easily balance your checkbook. But most software also comes with extra features like checking your income statement every month, every quarter or whenever you need to see where your profit is. It’s time to stop relying on calculators to track your activity.
There are several accounting programs that make it easy to track and manage expenses. Most of them are error free and give quick results. When choosing accounting software for your business, make sure you purchase software that is well known and popular among accountants.
11. Assign the processing of the petty cash. Designate someone you trust in the company to handle the petty cash to make it easier to keep track of your money and avoid confusion and errors. Even though petty cash is primarily a small amount of money, these small amounts can quickly add up to a large amount. Establish clear guidelines for using petty cash and eliminate unnecessary expenses.
12. Don’t procrastinate: always write down your receipts as soon as you receive them, rather than waiting for them to pile up. Any delay in this file may result in loss of control over your financial data. Regularly documenting this data saves you time and ensures that your records are always up to date.
13. Maintain a budget. It is very important to have and maintain a budget to track your spending. Take a detailed look at your weekly expenses and see how your income is compared to them.
However, depending on the local situation, you may need to adjust the budget from time to time. If the need arises, you should do whatever is necessary, but be sure to allocate enough funds for all the major departments in your business. Provide contingency funds as well.
14. Know the basics of accounting: Even if you intend to hire a specialist to do the accounting for you, your business will be very useful if you master the basic accounting tools and are actively involved in the management of the account. capital of your business. Money is very important in business, because knowing the financial aspects of running a business is just as important as knowing the product or service you are selling.
Do your best to study subjects such as bookkeeping and bookkeeping to better understand and understand your investments. Track the movement of cash to and from your business; this is called cash flow. Cash refers to your money in the bank with which you have to pay your employees, suppliers and creditors. Underestimating the differences and implications of positive and negative cash flow can be very beneficial to the financial health of your business.
A positive cash flow is good for the whole business and indicates that more money is going into the business than it is going out. On the other hand, a negative cash flow indicates that more money comes out than it receives, and that’s never a good thing. If the negative trend in cash flow does not change, the business will shut down permanently.
Tracking your cash flow will help you keep track of your money by determining if too many of your business assets are tied up in inventory, if you need to collect the money you owe, or if the cash flow of your business is over. business is simply not enough.
In addition, you should also look at your company’s balance sheet. A balance sheet is a snapshot of your business ‘financial position at a point in time, listing your business’ assets and liabilities to arrive at its net worth. It also gives you a clearer picture of what your business owns and owes at any given time.
15. Plan big expenses: Always keep your top expenses in perspective and plan to coincide with when your financial calendar is in full bloom, rather than when your budget is tight. It is very important that all business owners know which months are the slowest to sell in order to avoid unnecessary expenses during these times. Plan all major expenses in advance to prepare for additional expenses. This will help to avoid unnecessary borrowing from company accounts. If possible, avoid large expenses during the low season.
16. Record Deposits Correctly: You need to make sure that we properly record all of your business’s deposits to ensure that you are not paying tax on money that has not been invested in the business as income. . Set up a system in your office so that all financial transactions are clear – know where the money is coming from and where it is going.
In conclusion, starting your own business can be very exciting, but turning a business into a successful one can be quite embarrassing. In addition to several highs, there will be several drops. You need to make knowledge and technology work in your favor to deal with setbacks, and the tips above should also help you prepare for and weather storms while keeping costs low and income high.