By keeping track of business expenses, you can control costs, as you know what you’re spending your money on and how much money is going out. It’s not the most glamorous part of the entrepreneurial lifestyle, but staying on top of expenses is important in terms of success.
Whether you run a small, medium, or large company, you should make informed decisions every step of the way. Accounting keeps you organized and accountable. The following tips will help you record and organize business expenses.
Separate Business and Personal Expenses
Keep business and personal finances separate at all times. This way, there won’t be any confusion over what expenses were for business or personal reasons. The benefits are many, including tax advantages and the ability to protect your personal assets.
Set up separate bank accounts. Your business is more than a hobby, so it needs to be treated as such. At the end of the day, you want people to take you and your business seriously. Use your business checking account strictly for business needs. Most importantly, get everybody in the company on the same page. It’s easier to stay disciplined when you have the support of your staff.
Get a credit card for the business. It helps spread costs, facilitates staff spending, and enables you to keep track of short-term expenses. Keeping credit cards separate is a good idea, as you won’t be tempted to use your own. Pay yourself a salary, from your business checking account to your personal account, withholding taxes from your paycheck.
Most importantly, understand what constitutes a business expense and what doesn’t. Inventory, payroll, and rent are just a couple of examples. Other expenses to be aware of are our office equipment, advertising and marketing, utilities, taxes, and loan payments.
Take Advantage of Modern Technology
Using software for accounting is a great way to monitor business expenses. You can categorize your transactions and expenses. What is more, you can create useful reports, so you know exactly where your firm stands from a financial standpoint.
Accounting software saves you time and money while allowing you to operate efficiently. Connect your bank account for accounting journal entries. Your bank transactions are imported via a secure connection between the accounting tool and the bank. You’ll begin receiving notifications of your transactions right away. Your finances shouldn’t be left up to memory and guesswork.
So, what’s the right accounting software for your business? QuickBooks is an option worth considering. You don’t waste time with training because it has a clean, intuitive interface. The reports span across all areas of business and help inform clients about your business practices.
Since you’re new to bookkeeping, it’s important to stress that a backup can save lots of headaches. Set up automatic backups of your QuickBooks file. If you use the web-based version, don’t worry because it’s a cloud-based program. You can link your email to QuickBooks, which makes it possible to email invoices and reports in a simple and efficient manner.
Always Save Receipts
Receipts support the entries in your books and on your tax return. They confirm that the transactions took place. Without the information that the receipts contain, there’s no way to prove ownership following a purchase, a request for a refund, or an exchange. Properly storing receipts, as well as other business records, can strengthen your business and streamline operations. You should hold onto the following types of records:
- Gross receipts: cash register tapes, deposit information, receipt books, invoices
- Purchases: canceled cheques or other documents requiring proof of payment, credit card receipts and statements, invoices
- Expenses: canceled cheques or other documents requiring proof of payment, credit card receipts and statements, invoices
- Travel, Transportation, Gift expenses
- Assets: purchase and sale invoices, real estate closing statements
- Employment taxes
Use the scanner on your smartphone to create photos or PDFs and store the receipts digitally.
Figure Out What Expenses You Can Cut Back On
To manage your business more efficiently, make an effort to reduce costs. While managing expenses is important, it’s equally important to focus on cutting costs to improve profit margins. Here’s an idea: save money on office supplies by letting vendors know you’re shopping.
They won’t want to lose you as a client. Just so you know, places like Amazon offer better prices on office supplies. Another idea is to harness virtual technology whenever possible. Virtual meetings eliminate the need for space, while technologies such as Google Drive promote collaboration and can be used as an alternative to paper.
You may need to think about recurring costs. These expenses appear on your income statement and are factored into the balance sheet and cash flow statements. Are your travel expenses out of control? Are you paying for any subscription services? Do you collaborate with a vendor that could be eliminated?
These are questions you have to answer. If you notice you’re spending more in certain areas, investigate why and take appropriate action. Figure out where your business is right now and where you want to be in the future.
Staying on top of business expenses is more important than you think. You don’t get to the end of the month only to find out that the expenses exceeded your income. Not only can you improve money management, but also you’re better prepared for the tax season.
If you keep meticulous records, you’ll be ready ahead of time for tax filing. By keeping a close eye on expenses, you can correctly reimburse employees. If the team is happy, people will be more productive. Keep hold of receipts for meals, travel expenses, and out-of-pocket expenses.
Finally, yet importantly, you need a level of financial awareness. Is your business as healthy as you believe? Maybe yes, maybe no. By tracking down expenses, you can get a better understanding of your spending habits and make much-needed changes to achieve your goals. It takes a little bit of time and effort, but business expense tracking is a paramount component of financial management. If you make an effort, you’ll be rewarded.