Tracking business expenses can be one of the most time-consuming and frustrating aspects of owning a business. However, it’s critical to know how much you spend each month on everything from utilities to inventory. The financial health of your business depends largely on its expenses. Fortunately, there are multiple ways to track your business expenses that can help to save you time.
Digitize expense tracking.
Many businesses track expenses by saving paper receipts and manually entering the charges into a software program or spreadsheet to categorize and record each expense. While using a software program is certainly better than the paper and pencil methods of old, it’s still time-consuming. You might never find the time to sort through the pile of receipts and enter everything manually. In that case, you’re relying almost exclusively on retroactive accounting through bank statements.
Instead, consider investing in a digital scanner or even a phone app that allows you (or your employees) to scan each receipt. All you have to do is run the receipt through the scanner and enter the category it should be filed under. The software program will store photocopies of the receipt that can be referenced later.
Choose the right accounting software.
There are a lot of software programs on the market to track business expenses, but they’re not all the same. All too often, business owners make the mistake of picking the most complicated (or expensive) solution on the market. While these programs have a lot of features, they’re often too complicated and become frustrating to use.
Business owners who are just starting out should focus on only the features they need. Categorizing expenses can be relatively simple for a small business, especially one with just one location and a few clients. Software programs that simply track expenses and produce invoices can be a good investment for many people who are just getting their business off the ground.
More established business owners may find that more complicated programs provide them with more tools, but be careful to pay for only what you use. Your expense tracking system should not become another unnecessary expense!
Keep your business and personal expenses separated.
One of the most common mistakes that new business owners make is combining their business expenses with their personal expenses. Maybe you use your own money to start the business. But if you don’t separate business and personal bank accounts quickly, your expenses will be very difficult to track.
Start by opening a separate checking account for your business. Be sure to get a debit card along with paper checks. And if you can pay the full balance every month, apply for a credit card under your business name. Use these accounts solely for business expenses.
Separating these expenses as soon as possible will make a lot of other things easier over time. In addition to making expense tracking easier, separating your business accounts will make it easier to build credit, apply for a loan, pay (less) taxes, and eventually expand.
Connect your tracking software to the bank.
Once you have a bank account dedicated to your business, you’ll want to connect it to your accounting or expense tracking software. This is a fairly common feature, and it will allow you to transfer entries automatically between the tracking software and your bank.
Essentially, you can set up the software to automatically record every transaction that you make with your debit card. While you may need to go back and categorize these expenses, many software programs will allow you to set up widgets that will categorize certain expenses, such as every transaction from a particular vendor, to a particular category. Ideally, you’ll want one place where you can see every dollar flowing into and out of your business in real time.
It takes a few minutes to set up, but it will be worth it in the long run as your business grows.
Create a standing appointment to work on accounting.
If you’re like most business owners, working on your books is probably one of your least favorite things to do. If it’s not on the calendar, it’s easy to brush it off. By blocking out time, you’ll prevent pop-up meetings from taking your attention away.
Time management is one of your greatest challenges as a small business owner. Don’t lose control of expenses simply because you failed to prioritize it.
If you just find that you’re way too busy to keep track of your expenses after enacting all of these suggestions, then it may be time to hire a professional. This is often a necessary step that a business takes in order to scale. While there will be some upfront cost, you might be surprised at how much money you save on taxes and wasteful spending when the books are in order.
But even if you add professional help with accounting, be sure to maintain visibility. It may not be the most fun part of the job, but it is critical to your bottom line. For more resources on managing expenses, check out our guide on small business budgeting.