Tracking and managing ecommerce business expenses is critical for the financial health of your business. This type of general maintenance gives you a full picture of how much you spend in a month and what that money is providing your business with. Even if your ecommerce business is already in a financially healthy position, tracking expenses is the only way to see where your money is being spent and whether or not your business is profitable.
While it may seem tedious to thoroughly track all of your business expenses, it can help you save time, money, and stress in the long run. In this post, we’ll explore specific reasons why regularly tracking your business expenses is important, various methods used for tracking expenses, and resources to help you get organized.
Whether you’re already tracking your expenses and looking for new strategies to stay on top of things or you’ve been avoiding managing expenses for your business, this post will help you structure your expenses so that they can be systematically classified and accounted for with ease.
Why does it matter if you regularly track ecommerce business expenses?
While it’s true that you could delay tracking down all of your business expenses till weeks before tax season, it’s almost guaranteed that you’ll lose money that way. Money that you could be investing back into your ecommerce business.
By managing and tracking your expenses throughout the year, you can save time and stress come tax season, and that’s not all. Although it may be a mundane task, tracking expenses can make a huge difference for your business:
Keep Things Simple
It might seem obvious, but when you’re consistently tracking your business expenses, managing them becomes much easier and simpler. When you have a constant eye on expenses there are no surprises when tax season comes around, you already know exactly what you’re dealing with. Instead of dreading the struggle to find invoices and business receipts, it’ll all be organized and ready.
And, many of your regular ecommerce business expenses are tax-deductible, including business lunches and meetings, bank fees, travel expenses, internet fees, and more. So, by keeping track of them thoroughly throughout the year you’ll have the best chance at maximizing your refund.
Additionally, you can promptly and efficiently reimburse out-of-pocket expenses that employees might have. Tracking your expenses minimizes delays and errors in reimbursement that can cause confusion and create frustrated employees. By regularly tracking your expenses you can keep your office running smoothly and stress-free throughout the year.
Stay Within Your Budget
By tracking business expenses frequently, you’ll gain a better understanding of what you’re spending money on and exactly how much. Taking daily or weekly inventory of expenses makes controlling expenses far easier, as opposed to monthly or quarterly, as unnecessary purchases become immediately visible.
Frequently examining expenses makes it abundantly obvious when you go over budget. And, if you don’t have a budget you are operating against, tracking and examining your expenses often will help you set one with an understanding of your recurring expenses. With that clarity, you can make smarter decisions that will help improve your spending habits and save your business money. It may even help you find places to readjust your budget and better allocate resources.
No matter how big or small your ecommerce business is, cash flow is one of the most challenging aspects of keeping your business financially healthy. Despite being cited as the number one reason that small businesses fail, including ecommerce, it’s often overlooked.
Tracking your expenses regularly and thoroughly is one key way to stay on top of your cash flow to ensure that no unnecessary or excessive money is leaving your business. By keeping a close eye on money going out of your business you can easily compare to how much is coming in, and thus ensure that you avoid financial shortfalls.
Reviewing expenses in relationship with your cash flow is also a strong way to determine if your business could benefit from supplemental working capital, such as ecommerce funding. While this may seem like another expense, a healthy dose of funding often can elevate your business to the next level and improve cash flow.
One of the most important metrics for your business is profitability, and while it might seem simple to calculate (just revenue – expenses) there’s no way to get an accurate answer unless you’ve been tracking your expenses.
Not only does profitability tell you if your business is making money, but it is also crucial for making important financial moves like attracting investors and proving that you’re a good candidate for ecommerce funding. Many ecommerce business owners make the mistake of assuming that their business is more profitable than it actually is, simply because they see sales but don’t understand the size of their expenses.
By tracking your expenses you can see exactly how profitable your business is almost instantly. Instead of digging through records to prove your business’ success, you can simply look at the total expenses compared to total revenue.
How do you start tracking ecommerce business expenses?
While it might seem tedious and frustrating to keep thorough tabs on your business expenses, it doesn’t have to be. If you’re making a plan to begin tracking your expenses there are a multitude of unique options, meaning that you can pick the one that best suits your needs:
Shockingly, many ecommerce business owners continue to opt out of technology when it comes to tracking their expenses. Receipts and invoices are kept in a shoebox or an overstuffed file and the information on them is manually entered into an Excel spreadsheet.
If your ecommerce business is just starting or is on the smaller side with minimal expense categories, manually tracking business expenses may be a viable option. Manually tracking your expenses is cheap and accessible. In many cases you can simply update spreadsheets from your phone or computer as you incur expenses.
However, as your business grows and expands, manually tracking your expenses becomes increasingly challenging. Receipts and invoices can be easily lost and cause disorganization, which makes filing for tax returns a lengthy and tedious process. Any significant amount of data entry is also time-consuming and prone to human error. Eventually, this leads many business owners to begin to procrastinate tracking expenses and creates a buildup of receipts and invoices that will need to be accounted for.
If tracking your expenses is creating more stress and causing your business to potentially lose money, during tax season and beyond, it might be time to consider hiring a professional. By working with an accountant or financial advisor you’ll have greater assurance that business expenses are properly tracked and managed throughout the year– eliminating a tax season panic. However, it’s crucial that you continue to maintain a healthy level of visibility to your expenses to keep perspective on spending and profit margins.
For larger businesses, hiring help may look like bringing an accountant in-house to manage everything daily. By keeping an accountant on staff, you’ll always be up to date with expenses and budgeting, and you’ll be shocked at how much you can save. If your ecommerce business is still growing, then having an accountant on staff likely isn’t as feasible or beneficial as you likely don’t require that much assistance. Periodically meeting to consult with an accountant or financial advisor can be just as useful without the cost of a full-time headcount.
Regardless of whether you’re outsourcing accounting or bringing it in-house, working with a professional can be expensive. If your business is already struggling to stay within budget and expense management then hiring a professional might not be an attainable option. Before hiring someone, ensure that you’ve taken the time to consider cheaper expense management options and avoid jumping straight into the deep end.
An increasingly popular option for expense management among ecommerce businesses is cloud-based accounting software. More options exist today than ever before in a wide variety of price ranges and each with unique features.
While you’ll still have to take the time to upload receipts and invoices, these services simplify and expedite the tracking process so that the organization becomes convenient and natural. This is also a far more secure way to store your business’ financial data, ensuring that it’s well protected and backed up, unlike paper copies.
If you’re interested in investing in accounting software we recommend that you choose an option that comes with the ability to:
- Seamlessly integrate with your business credit cards and bank accounts for automatic expense tracking. This is important because it saves time and cuts down on the number of paper documents you need to hold onto by automatically updating your expenses to reflect transactions from account and card statements.
- Easily capture and upload expenses with photos from your mobile phone to prevent lost paper receipts. Anything that’s not automatically tracked through your bank or card should be convenient to track- making it a natural instinct to document, rather than a hassle.
- Categorize expenses quickly as you’re uploading receipts. These categories then can be easily used to create important financial reports that show the health of your business.
Viably offers all these features and more in our fully integrated expense management tool, allowing you to seamlessly manage your business expenses and get a holistic view of cash flow, funding, and growth in one place. Rather than using various tools to fund, forecast, and track your expenses, Viably’s all-in-one platform makes it easy to get an in-depth understanding of where your ecommerce business stands financially.
No matter which method you choose to manage your ecommerce business expenses with, it’s important that you dedicate time periodically to reviewing your expenses. By creating a standing time on your calendar dedicated to managing your ecommerce business expenses, you will guarantee that they don’t get overlooked and can consistently remain in good health.