Between taxes, credit card rebates and simply knowing if you're profitable, watching the pennies is essential.
Is it important to track each and every one of your business expenses? Ask that question to any financial expert, and I’m sure that across the board they’ll answer with a resounding “Yes!”
I get it.
You already have enough on your plate. And, it may seem like a lot of work to get started and organized. However, tracking all of your expenses gives you a better understanding of how you're managing your money and could help you get some cash back. But, that’s just the tip of the iceberg.
Regardless if you’re handing your an accountant a box full of receipts, creating a spreadsheet, or using an app, there are three main reasons why you need to keep tabs on your small business expenses.
1. You need this level of financial awareness.
Do you know where your money goes each month? Is your business as financially healthy as you think? Tracking your expenses, even those small daily expenses like coffee and postage, warns you if there are any serious spending issues before you blow your budget. If you want to put more money into your bank account, you need to find out where your business is wasting money.
Tracking your expenses also ensures that you can reach your financial goals. By understanding your spending habits, you can make the appropriate changes so that you can ultimately achieve these aims.
2. You won't pay taxes that your don't owe.
Tracking your expenses can also benefit your during your least favorite time of year: tax season. If you have kept track of your expenses, you’ll be prepared to get the most deductions possible. The more deductions you’re eligible for, the lower your taxable income will be.
Since the IRS doesn't work on the trust system, you need receipts and documentation to prove what you spent was “ordinary and necessary.” Be aware of the tax deductions you can claim, including overlooked expenses like travel, vehicle, education, inventory, meals and entertainment, home office, advertising and bad debts.
3. Get every available credit card reward.
Use a credit card that has a sweet rewards program when making purchases for your business. For example, the Chase Freedom credit card allows you to earn up to five percent cash back on a variety of purchases. Additionally, look for cards that let you earn and redeem points for free flights and hotel stays. This will also be less work for your accountant and is easy for you to stay organized.
Tracking your expenses permits you to provide employees with prompt expense reimbursements when they have to pay for gas, airline tickets or meals out of their pocket. If you are always organized, you can pay them back quickly. This keeps them happy and fits into that full financial awareness I mentioned earlier.
Now that you know the value of tracking every small business expense, here’s how you can easily monitor, track, and organize all of such expenditures.
Don't mingle funds: Keep your business and personal finances separate. Open a business bank account and dedicate one credit/debit card to business related expenses. This makes organizing your expenses easier and keeps you out of trouble from the IRS.
Know what you can deduct: This was touched upon earlier, but it deserves mention again. Know what you can deduct so that you lower your taxable income and stay in the good graces of the IRS.
Stay on top of your receipts: Whenever you have a receipt for an expense, make sure that you store them in an envelope or shoebox and the file them accordingly by month. It takes a couple of extra minutes, but it’s better than organizing all of your receipts at the end of the month. Thanks to technology, there are now apps like Shoeboxed that allow you to capture receipts and file them on your mobile device.
Use an online calendar to track recurring expenses. You can use Google Calendar to receive a notification to remind you of upcoming expenses or when recurring payments, like your utilities, are posted. This way these costs are easy to locate and print when needed.
Use accounting software and apps: Most online banks and budgeting software, give you the option to generate expense categories and link them to line items on your tax forms, which makes your tax preparation less hectic. It can also be used to create profit-and-loss statements. Download apps that are designed specifically designed for expenses, such as Concur, Expensify, BizXpenseTracker and, of course, Due.
Use a top app. Here is a few top time tracking apps to help you along your journey.
Finally, if you’re too busy to track your expenses, consider outsourcing this task to a bookkeeper. If you have any serious concerns or questions, don’t hesitate to talk to your accountant or financial expert.
By John Rampton