When you’re immersed in the day-to-day running of your business, it’s easy to get caught up in how you think your business is doing financially versus how it’s actually doing.
Tracking your business expenses is important because it helps you see the big picture. It leads to accurate bookkeeping, which will allow you to see when you’ll break even, calculate your quick ratio, explore trends in your numbers, and make forecasts.
What are Business Expenses?
As a crucial part of the bookkeeping process is tracking business expenses properly, before we can talk about tracking your business expenses and its importance we should first dwell on the business expenses meaning. Any expenditure that is related to your business is considered a business expense.
Here are some common business expenses you are likely to encounter:
- Bank fees
- Consulting fees
- Contract labor
- Dues and subscriptions
- Office supplies
- Postage and delivery
- Printing and copying
While these are more common business expense examples and categories, any purchase that is associated with your business can be categorized as a legitimate business expense.
Here are 5 tips on how to track expenses for your business:
Open Business Financial Accounts
Freelancers and small businesses may find that the line between their personal and business finances is pretty blurry and it could be challenging to track personal expenses on business accounts or vice versa. Once it is tax time, you may find yourself digging for business expenses among your grocery and clothing purchases.
Open business financial accounts so that business-related expenses are crystal clear. Then use your business accounts for all business purchases. Jeton Business offers comprehensive business accounts to its customers where you can get your own customised IBAN and you’ll be able to track every transaction.
For your financial transactions, it is highly recommended that you should avoid using cash, when possible. Because cash is too easy to spend, hard to track and only has a receipt as a backup, unlike a digital transaction which has a record in your bank statement and a receipt. It’s better for your business, better at tax time and definitely better if you get audited to use debit and credit for purchases.
Manage Your Receipts Properly
Another way to ensure that you’re tracking your business expenses properly is to use the business expenses app that is available with your accounting software application. If your software doesn’t offer such a mobile app, you can choose to use an expense management application that will integrate with your software.
These apps typically allow on-the-go expense management, allowing you to take a picture of a receipt and upload the image to your software, where it will be stored and later attached to the appropriate expense. If it’s a reimbursable expense, the receipt can be used for creating an expense report.
Review and Categorize Your Business Expenses Regularly
As a business owner, you should get in the habit of reviewing your expenses regularly to make sure your transactions are properly categorized. To make life easier, with Wave Money you can watch as your expenses are automatically categorized in real time, saving you hours of manual work.
Get in the practice of reviewing your expenses regularly (perhaps making it a part of your weekly review) to check that transactions are properly categorized. This will help make sure your reporting stays accurate. If you come across something you’re not sure how to categorize, don’t get stressed. Make a note of it and circle back to it when you’re doing your monthly or quarterly bookkeeping review.
Having your business expenses categorized and up to date means you’ll be able to check in with the financial pulse of your business throughout the year. You’ll be able to see exactly how much you’re spending, if you’re profitable or not, and make any necessary corrections as you go.
Know Which Expenses are Tax-Deductible
Understanding which business expenses are tax-deductible and which are not is crucial when managing your finances. This will help you save money and track your spending more efficiently.
Some common tax deductions include:
- Vehicle and travel expenses
- Clothing, laundry and dry-cleaning expenses
- Home office expenses
- Self-education expenses
- Tools, equipment and other assets
- Other work-related deductions
To find out more on which business expenses are tax-deductible visit your country’s Taxation Office website.
Use Expense Tracking Apps
Tracking expenses isn’t always as easy as making a purchase and keeping the receipt. Sometimes you need to track in real time, for instance when you’re logging your business miles. Here, using an expense tracking app makes sense, because it eliminates human error. You can then send your reports to your accounting software electronically.