It doesn’t really matter how much income your business has coming in if you are spending more than you make. Whether your business is the corner market down the street or a Fortune 500 company, it is so important to track your business’s expenses.
When first starting out, it’s easy to spend and spend and spend. And, it’s easy to justify all of that spending. You have to spend money to make money, right? As true as that may be, that adage can become a trap when spending becomes reckless and you aren’t sure exactly where all of the money is going.
Every penny, dime, and dollar should be accounted for. This is one of the most crucial aspects of small business accounting.
Why is it so important to track your expenses?
Keeping track of all of your expenses can seem tedious. And it can be, especially when you first start. But don’t get discouraged by the tedium. Once you have a system in place, it will become easier and more natural.
“The main reason to track your expenses is so that the company can actually turn a profit. If you don’t know where your money goes or how you spend it, you won’t know what habits you can change in order to make your money work for you.” (Miriam Caldwell, The Balance)
That’s the thing. You want to be in control of your company’s money. The money shouldn’t be controlling you. It may seem restricting, to track every since transaction, but having a keen grasp on your company’s finances actually gives you the freedom to make smart decisions.
Knowing how much money is leaving your business and when, will help you to make sure that too much isn’t going out at one time.
Furthermore, if there comes a time when you need to take a step back and start pinching pennies, having a clear picture of where all of your money is going will help you to make wise decisions.
For example: electricity bill has been slowly creeping up? You can save some money by turning down the air conditioning, installing a programmable thermostat, or even using high efficiency lightbulbs. Have you noticed that you are spending way too much on office supplies each month? Look for sales or other discounts.
Tracking expenses is a way to actually follow through with a budget. Without tracking expenses, having a budget is like asking someone for directions and then throwing them out the window. Tracking expenses helps you to stay on track and within a budget.
Lastly, when it’s time for tax season, you will be glad you kept up with tracking your expenses throughout the year.
What you should do to track your expenses
The best thing to do is begin keeping track of your expenses right from the beginning. If you are already doing that? Great. But, you want to do more than just save a bunch of receipts in an envelope. Create categories to help you keep track of expenses. Here a few sample categories:
- Transportation/Vehicle expenses
- Office Supplies
These are just a few ideas to get you started, but your categories may look different depending on the nature of your business. You may want to even have a separate category for expenses that can be deducted on your tax return.
You will have both fixed and variable expenses. Fixed expenses typically stay consistent from month to month such as rent or mortgage payments, while variable expenses may fluctuate. Starting to track expenses for the first time? Take an account of your fixed expenses first-they will be an easy starting point.
How to track your business’ expenses
So you have your categories and are ready to go. You can simply track of all your expenses manually by writing them down, but that can become very time consuming and exceedingly difficult as the business grows.
Therefore, there are few things that can help you out:
Software and Apps than Can Help
Cloud based accounting programs, such as Xero, can make tracking expenses pretty painless. There are also free apps as well as apps you can pay for to help you out.
Apps for tracking expenses:
You can read a review of some of these apps on DUE here.
Other tips to simplify expense tracking
Try streamlining expenses by just using one credit card.
If your company has multiple people making purchases, have an organized system that everyone complies with. For example, you could have individuals report their expenditures to a single person in charge of the accounting, or each person could be responsible for making sure their own expenses are accounted for.
Looking for more accounting advice to make the most of your business? Contact us at Lucid Advisory and Finance.