Keeping records of your expenses is a vital component of running a business. As the proprietor of your business venture, you cannot disregard this responsibility. Keep reading to discover easy ways to track your expenses and avoid financial, tax, or other troubles.
Dealing with business expenses probably isn’t what made you excited to start this business in the first place. You want to put time into growing your business, serving people, and pursuing your passion not tallying up receipts!
But here’s the good news: tracking your spending smartly actually helps fuel your big vision rather than just creating headaches. Having a clear insight into where money comes in and goes out means you can make strategic decisions, keep operations running smoothly, and confidently plan for growth.
Too many businesses fail because they wait until it’s too late to get their finances under control. In fact, surveys show operating costs make countless entrepreneurs stumble, to the point that 47% couldn’t float their biz for two months without personal funds. It doesn’t have to be that way for you!
So, in this post, I want to share the best ways to make expense management much easier so you can focus on doing what you love while still keeping your books accurate and up-to-date.
Best Ways To Keep Track Of Business Expenses
Tracking every little business expense may not sound like a fun task. Nevertheless, it’s very important to see how costs balance against revenue.
Fortunately, once you find a process that works, staying on top of your expenses will no longer mean constant, tricky administrative worries. Rather, keeping records of transactions will help your business succeed in the long term!
Below are 6 key steps for making expense tracking as smooth as possible:
Step 1: Open a Separate Bank Account
If you want to easily track your biz expenses, step one is to open a business bank account. Keeping your funds separate from personal dough makes monitoring cash flow much easier. Having separate business money also protects your personal assets if your company ever faces lawsuits or bankruptcy. Plus, there are some tax benefits that may come in handy. Business expenses are tax deductible, so business bank accounts help keep everything legit for write-offs!
But that’s not all! You should get business credit cards too! Having a higher credit limit immediately makes your finances look solid to potential lenders. Also, you can use the cards for big purchases even when funds are tight. Business credit allows you to get the tools you need to grow, even if money is not there yet. All that good credit history and higher limits also help you negotiate better rates from suppliers. Not sure where to start? I recommend an American Express card!
Step 2: Determine the Accounting Type
This decision between “cash basis” and “accrual” might sound like some financial jargon right now. But having the right system in place is what transforms jumbled piles of receipts into useful insights to grow your biz! So, which is best for you? Sticking with cash accounting is a nice and simple option. It just means you log income when a payment lands in your bank account and expenses when you pay the bill.
But if you’ve got a growing team, bigger revenue goals, or just want to level up beyond basic bookkeeping–an accrual accounting system is the way to go! With accrual, sales get recorded when the transaction happens rather than waiting for the actual cash payment to come through. Same for expenses you log them when you get the bill, not the payment date. This helps give you a more well-rounded picture of how your business is doing.
Right now, the cash accounting system is probably fine and easy. However, an accrual accounting may become vital for your business as you scale up.
Step 3: Link Accounting Software to your Bank Account
You’ve probably heard how small businesses’ use of accounting software can be a total game changer for managing expenses. And the stats speak for themselves: around 64% of companies already leverage digital platforms to automate tracking and reporting.
The right programs seriously streamline everything by syncing your accounts, importing the latest transactions, and generating financial overviews on-demand. You avoid having to manually log every single payment or receipt since it’s automated. And you gain real-time visibility into cash flow from any device.
Top-rated options like Certify, Expensify, FreshBooks and my favorite, Intuit QuickBooks help many entrepreneurs keep their finances organized without wasting hours on bookkeeping. Everything’s housed in one spot instead of scattered between filing cabinets and spreadsheets. And you, your team, and your accountant can focus on analysis rather than number-crunching.
Step 4: Create a Monthly Budget
I highly recommend putting together a monthly expense budget as one of the best moves for gaining control over your business finances. Having an overview of estimated income vs. projected spending each month really helps ensure dollars are allocated wisely. You can account for fixed needs like rent and payroll, then gauge flexible costs around marketing, paying yourself, etc., based on real-time revenue. If you’re interested in the software I use for payroll, check out ADP!
Budgeting simply brings clarity to what’s coming in and going out. From there, you can proactively direct leftover funds to business growth opportunities or rainy-day savings rather than wondering where surplus cash disappeared after the fact.
And when you track expenditures against your projections, you pinpoint where reality aligns or diverges from the plan. This allows for making informed adjustments. It’s like having a map so you can catch when you get off course.
Step 5: Keep Digital Records of all Receipts
It’s no fun when tax season comes around, and you’re stuck sorting through a confetti pile of faded, crumpled-up receipts! No one enjoys that scramble to decode months-old scraps of paper or risk missing write-offs because you can’t read a receipt’s 5th photocopy.
Luckily, digitizing receipts makes everything so much smoother. The moment you get a receipt for a business purchase, just digitally capture it right then and there. That way, you have a crisp, readable digital copy that’s easy to categorize and file away.
Having complete documentation makes claiming legitimate expenses a breeze when taxes come due. Plus, if you ever face an audit, clear digital financial records prevent major headaches of proving expenses.
Step 6: Retain and Group Monthly Outlays Into Expense Categories
Monthly expense reporting is valuable for closely monitoring where your money is going. Whether you use a basic spreadsheet, a written ledger, or digital apps, the key is consistently tracking outgoing costs across standard categories.
Beyond keeping your finger on the financial pulse, detailed expense documentation covers you legally over time. The IRS requires all business owners to maintain records for at least 3 years. So, organizing receipts and reports protects you during tax preparation or in the event of an audit.
Additionally, regularly reviewing expense trends against your budget projections helps spot any areas that are getting off track. Identifying unexpected spikes in spending or savings early on lets you course correct and make financially savvy pivots.
Also, properly sorting your expenses into categories makes tracking and reporting way simpler down the road. It also ensures you capture every possible tax deduction when the opportunity presents itself.
While you can create custom buckets that make sense for your business, common high-level categories include things like:
- Office Supplies
- Legal/professional services
According to IRS guidelines, a few specific categories carry weighted deductions, like:
- Cost of goods sold: materials, production, freight, etc.
- Capital expenses: assets, equipment, and startup costs
- Mixed personal/business use (home office, etc.).
Expenses can also be grouped by accounting method: either accrual (when transactions happen) or cash basis (when paid).
Are you ready to take the next step?
As a small business owner, your mind is pulled in 100 different directions: your amazing products or services, marketing to new clients, keeping current customers happy and then there’s the not-so-glamorous stuff: managing finances, tracking expenses, and crunching numbers.
It’s so easy for the financial side of things to feel overwhelming and, frankly, a little scary. You poured your heart and soul into this business. What if you make mistakes and put them at risk?
Here’s where I come in! Consider me your personal “numbers wizard” here to turn financial confusion into confidence. We’ll tackle bookkeeping step-by-step so you have the data and tools to make smart, informed choices for your business rather than give you headaches.
I want to make your life easier, not add more to your plate! Whether you’re just starting out or have been around for a while, I’ve got you covered. We’ll get your books squeaky clean and keep them that way. So, reach out and let me handle the heavy lifting. You keep focusing on growth, and I’ll handle compliance, reporting, staying on budget, as well as meeting all offline and online business requirements all of it.
I’ve even pulled together templates, guides, and resources in a convenient Ultimate Bundle™ for whenever you need a boost of financial inspiration! Plus, I’m constantly updating new strategies on my blog and podcast.
I’ve got everything covered, so rest easy.