Small business expense tracking accomplishes several things at once. Here’s what you need to know.
Typically, small business owners don’t get out of bed thinking how fun it’s going to be to track their expenses. In fact, most of them put off their small business expense tracking until just before tax time is set to begin. It’s only at this point that they start scrambling to get all the paperwork together.
This is normal enough, but it doesn’t have to be this way. It might very well be a tedious task but tracking your business expenses is more than beneficial enough to justify a little diligence here and there. Let’s look at just a few of the advantages you’ll gain by keeping track of your business expenses.
1. You Manage Your Money Better When You Know Where It Goes
Out of the many reasons that businesses fail, not having enough money is one of the most common. This is demonstrated by articles all over the internet. So, if having access to enough money is so important, isn’t it a good idea to do anything you can to make sure it happens?
One effective method for keeping enough money on hand is through vigilant small business expense tracking. That way, you don’t look at your quarterly financial statement and discover that you’ve spent more than you’ve brought in.
Tracking your expenses can help you avoid this dismal fate. It does this by making you aware of how much you’re spending, and on what. It also results in lowered costs. The numbers at which you arrive become signs that tell you where things stand relative to your budget.
Another great way to make sure your business has enough money to stay operational is to perform regular evaluations of your business’s inventory. This is really important when it comes to reporting your business’s financial status. View our article ” Why is The Valuation of Inventories Important in Financial Reporting?” to learn more information.
When you have this kind of knowledge, you can stop overspending and stay within your business’s means. This means both a fatter bottom line and a great of deal of extra cash for investing in critical areas of your business.
2. Small Business Expense Tracking Prepares You for Tax Season
For some, tax time is the worst part of the year. This is especially true for those whose negligence has them ransacking their office in search of their precious business receipts. Don’t worry== there’s an easier, better way.
It’s all about keeping good records. Do this throughout the year, and you’ll be much more ready for tax season. This means less stress and wasted time, as well as a fair amount of tax savings. As you probably already know, you can deduct a wide variety of business expenses.
This includes things like smartphone data, business meals, office supplies, and the cost of business-related travel. You can deduct all these things and more, but only if you record and sort them properly. If you don’t, the tax collector will get to keep that much more of your money.
3. Tracking Business Expenses Makes Everyone Happy
Your employees have business expenses too, and they probably hand you the receipts for every single one. It’s understandable, right? They spend money on business-related expenses, and they’d like to have it back.
Stay on top of where your money goes, and you’re more likely to reimburse your employees quickly. This will keep complaining to a minimum and go a long way toward making everyone happy. They certainly don’t want to remind you five times before they get reimbursed.
4. Tracking Expenses Means Tracking Profits
Theoretically, it’s easy to calculate your business’s profits. It’s just a matter of subtracting your total expenses from the revenue your business brings in. Hopefully, you understand how critical it is to know your profitability. It not only tells you if you’re actually making money, but it also funds your daily operations and helps you get the financing needed to expand your business.
Unfortunately, far too many small business owners have a hard time keeping track of their profitability. This stems from an inability (or unwillingness) to maintain precise records. But keeping good records is nowhere near as hard as it sounds. All it requires is a little attentiveness and motivation.
Consistently tracking your business expenses can also keep you from having to guess when you need to know your profitability. This is a very common mistake– business owners generally know how much money is coming in, but it’s a very different story when it comes to how much is going out.
Staying abreast of your expenses is critical to your business’s success. It helps you do the following:
- Know exactly how much you end up spending
- Manage your money more effectively
- Reduce stress and worry come tax time
- Lower your overall taxes
- Keep your team of employees happy
- Know your profitability
It probably goes without saying that you’ll need the right tools to make all this happen. In this case, the right tools are usually software packages that simplify the process of tracking your expenses. These tools will help you with three things right off the bat:
- Make tracking costs easier
- Keep records that are both accurate and up-to-date
- Overall cost control
Just remember– you don’t have to do it alone. There are plenty of software packages out there that can make small business expense tracking a snap. You can connect many of these tools to your bank account. This will keep you from having to input expenses manually. It just requires taking and uploading a photo of your receipts. When you’re equipped with the right attitude and tools, tracking expenses is much easier. Now that you know what to do, all that remains is to get started.
About Robert Caron
Robert is a Certified Public Accountant in the State of New York and a Chartered Financial Analyst. He has worked in the international tax departments of Big 4 and National accounting firms and held various finance and accounting positions in small and medium-size businesses. He specializes in helping people in the real estate and transportation industries, with a focus on international US taxation.