You're a business owner. You answer to no one, you pay yourself, and you take breaks whenever you want.
Heck, you even go on business trips and stay in 5-star hotels.
It's freedom like no other, but if you're not careful, you could end up restricting your business income.
What do we mean?
Well, if you're spending business funds on business expenses and not tracking them, then you're also not writing off these expenditures on your tax return.
This is just one of the issues you'll face if you're not adequately tracking your business finances.
If you're new to this, then you'll find the following helpful.
Let's first take a look at why it's crucial for you to track your expenditures.
Why Track Your Business Expenses?
You'll find there are many reasons why businesses are hell-bent on maintaining and tracking every cent their company spends.
This holds true for both small, medium, and large companies.
By tracking expenses, you can witness the following benefits.
Better Manage Business Finances
Knowing where your money is going each month can help you see what expenses are sucking the life out of your business. If you're operating at a loss (or close to it), then tracking expenses will quickly identify where it's all going.
Make it a habit to track all daily expenses to keep an eye on things. Don't worry, we're going to share tips shortly on how to keep track of expenses easily.
Prepare for Tax Season (and Get Your Money Back)
One of the pitfalls of being an entrepreneur is that you may end up paying taxes at the end of each year. But if you're prepared with a detailed list of expenses, you can easily find which are deductible.
For instance, in America, you can write off business expenses like:
- Business lunches/meetings with clients
- Business travel expenses (gas, hotels, food)
- Rent expenses (for your office)
- Home-office write-offs
- Smartphone and data costs (some are even writing off their iPad!)
- Office supplies
Then in the UK, you can write off the following business expenses:
- Clothing expenses
- Staff expenses
- Marketing expenses
- Office, property, and equipment
- Reselling goods
- Legal and financial costs
These aren't complete lists, but already you may see one or more expenses you could be writing off each tax season.
Why pay more in taxes than you have to?
Maintain a Profitable Business
The more organized your finances are, the easier it is to calculate how profitable your business is. Again, you should pay close attention to how business expenses are accruing and whether you should eliminate/reduce some of them.
Without proper expense tracking, you'll have to dig through financial reports to get this data. Why go through all of that?
Next, let's take a look at some tips you can use to track your business expenses better.
Open a Separate Business Account
Whether you're a freelance or serial entrepreneur, having a separate account for each of your businesses is vital. This will help you to track what goes into and out of your business efficiently.
The worst mistake new business owners make is using their personal bank account for collecting revenue and paying expenses.
Don't do this.
Immediately open a bank account and use it explicitly for business. This way, it's not difficult to separate personal and business costs if you're investigated by the IRS (or equivalent in your country).
Learn What You Can Deduct
It's important to identify which expenses in your business you can deduct on your taxes. Then flag them for easy lookup when it comes time to complete your tax return.
This will make it easier for you to find them to prove your expenses to a tax auditor.
It's also essential to know what falls under the deduction policies. For instance, when is lunch considered a "business meal?"
If you're meeting with a client to discuss business topics, then this is considered business-related entertainment.
Then if you're using your vehicle for business purposes, then you'll need to track the mileage and gas expenses for each business trip you make.
Don't Throw Away those Receipts!
One of the best ways to prove your business expenses isn't through your bank account -- but through receipts. This shows that the money spent was on the costs you claim on your tax return.
Plus, it'll help you to calculate your business expenses to ensure they're accurate.
There are tools you can use to take snapshots of receipts using your mobile device.
Use an Online Platform to Track Expenses
The old school way of tracking expenses is to use books and ledgers or even spreadsheets. Today, there are a variety of platforms available that are easier, faster, and better.
For instance, invoicely allows you to track where your business income is going. You can use it to track time, expenses, as well as mileage.
Everything's accessible right from the dashboard.
Then if you charge your clients for expenses related to their projects, you can bill them for it right through the platform.
You can even manage the number of hours contractors spend on a task.
The dashboard comes with a timer you can start and stop. Then once you bill the client, you'll see it marked as "billed."
You can also clock how much gas and mileage you use to go to mandatory client meetings.
This is an excellent way to get reimbursed for your business expenses now instead of waiting around for tax season.
Make a Record of Transactions at Time of Sale
Don't wait until you have a pile of receipts to try and organize and record them. The best time to do this is at the point of sale.
When you make the purchase, take a snapshot of the receipt or invoice. If you order something online, then save a PDF of the invoice and add it to your business expenses folder for the year.
Don't Forget About Cash Transactions
Yes, some businesses are still receiving and spending cash. This is a little hard to keep track of since there's no digital trail like with bank and credit card transactions.
You'll just have to pay closer attention to when cash purchases occur so you can accurately record them.
If you're using financial software, you can create a cash account to monitor every dime you spend.
Use Business Credit Cards Whenever Possible
If you have a business credit card -- use it. This will help you to keep better track of all your expenses.
Not only does it record each transaction in real-time, but it also gives great insights. For example, you can see your monthly, quarterly, and annual spending broken down by categories.
This alone can help you to monitor how you're using funds and where you can cut costs. Maybe you're spending a little too much on business lunches and travel tickets.
Find Cloud-Based Solutions
You want to be able to keep track of your business expenses wherever you are. So when you're away on a trip, and all you have is your smartphone, you should be able to record it on there.
It's also great if the platform can integrate with your existing accounts. This way, you can bill for expenses right through the platform and receive funds in your bank, PayPal, or Stripe account.
Make Assessments throughout the Year
Don't wait until a year's passed to trim the fat off your business expenses. It's ideal to review your expenses quarterly so you can actively find ways to improve your profit margins.
Make it a priority to go over each expense to see where you can cut back.
If you have employees or partners who also dabble in your accounts, then see where they can cut back as well. It needs to be a team effort so you can work together to stay within your annual budget.
Ready to Start Tracking Your Business Expenses?
Then it's time to get organized. You can start by obtaining the tools you'll need to manage all of your expenses.
Platforms like invoicely are well-rounded since it acts as a tracking and invoicing tool.
But whatever products or services you decide to use, be sure to implement the tips listed above. Educate your teams so they can help you in your initiative to save money now and make proper deductions when tax season comes.
Already have a setup for tracking your business expenses? Then let us know in the comments about how you manage your finances!