Business owners track business expenses to see their profits or losses. Without a regular review of their fiscal performances, the organization may suffer from bad accounting. Imagine explaining to employees that there’s not enough money for the business to pay them. Or, what about running out of funds to keep up with inventory? The thought is terrifying.
Fortunately, there are solutions. Business owners have a wide variety of tools to help. By using easy-to-implement technologies, a company can avoid common budgeting mistakes. And, if an error does occur, they can react quickly to fix it.
How to track business expenses
The key is visibility. The easier it is to see money coming and going, the easier it will be to track it. Here is a brief outline of ways to track business expenses.
Why must personal and business expenses be separated?
Separate financial reporting is necessary because it specifies ownership of assets in the event of bankruptcy. It removes personal liability from the equation. Furthermore, business accounts often come with unique perks, such as specialty rate options and waived monthly fees.
Which expenses should a small business track?
We’ve already briefly touched on why proper bookkeeping is crucial for a business; now, we’ll discuss typical expenses a small business should track.
– Rent or mortgage payments
– Licensing fees
– Equipment purchases and rental
– Payroll costs
– Loan payments
– Interest payments
There are many best practices to make a small business grow, and proper expense categorization is a great beginning.
Do companies still use Excel to track business expenses?
The answer (in short) is yes. The reasons are primarily availability and price. Most computers include Microsoft Exel for free. That means the program is readily available and at no additional cost to the business.
Are there better tools available?
This response is where it gets more complicated. We’re going to say maybe. It boils down to the needs of the business and its available capital. Examine each step of the process below to decide.
1. Digitize receipts
Businesses have numerous choices when it comes to digitizing their receipts. Some apps require special hardware, while others work by using a smartphone. The purpose of making electronic copies is to reduce the longevity and usefulness of the information. Scanned images don’t fade away with wear and tear. Also, receipt collection software can effortlessly organize data to track outgoing expenses.
2. Review spending regularly
Every business should assess its earnings regularly. Setting a schedule to examine assets vs. liabilities can reduce overdrafts and miscalculations. Experts state that small businesses should keep at least six months of operating expenses in their reserves. Proper cash-flow management is paramount to keeping enough cash on hand for business emergencies.
Every time an organization reviews its spending, it determines if it’s reaching financial goals. If the budgeting plan requires adjustments, the business can act accordingly. The more often the review, the more proactive it can be.
3. Consolidate to one dedicated business account
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4. Store expense records in a centralized place
If the business has multiple users of its accounts, then expense activity should be accessible in a centralized place. That way, the information stays current and is tracked under one stream. Using a system that’s divided has the risk of updating at different times. It could cause some users to track expenses incorrectly or out of sync.
5. Opt for automatic import of transactions
This final tip goes hand in hand with the entire process. The more a business utilizes automation, the more seamlessly it will track business expenses. Moreover, most software that imports transactions can also categorize the information. Business owners track key performance indicators without manually inputting the calculations. Not only does it save time, but it also standardizes the way the company keeps its archives.