Expenses are a part of life when it comes to running a small business. Whether you need to pay the light bill or buy supplies, there is always something you need to pay for. Tracking those expenses helps you know how much you are spending, where you can cut costs, and how you should approach tax time.
Here are five tips to improve the way you track expenses in your business.
Keep your receipts.
When it comes to tax time, you will want a paper trail to prove why you are taking certain deductions. Expense receipts are a critical piece of that paper trail. Verify that the receipt indicates the date and time. Write down the reason for the expense either on the receipt or an attached form.
You can use a scanner or your cell phone camera to digitize the receipt. This will help you keep all your receipts in one digital folder. Consult with your accountant on whether you can dispose of the physical receipt or not.
Use software and phone apps to make tracking expenses easier.
You will need a central accounting system that is compatible with the system your accountant uses. Quickbooks is a popular choice. It works well for businesses of all sorts and many accountants use it for their client work.
In addition to your accounting system, you can use various phone apps to make your day-to-day tracking easier. Apps like BizXpense Tracker and Expensify help you track mileage, business expenditures, and billable time. These apps have export features allow you to integrate their information into your accounting system.
Keep personal and business separate.
Small business owners often wear many hats, usually simultaneously. It is so easy to use the same debit card on a trip to the office supply store to get things for the business and at the grocery to pick up tonight's family dinner. But, intermingling personal and business expenses in the same account makes tracking business expenses extremely difficult. Plus it raises concerns that non-business purchases are being taken as business expenses, a big red flag with the IRS.
Have a separate business account, with its own checkbook and debit card to handle business expenses. It gives you one place to track business expenses, instead of separate. It also makes it easy to find tax-deductible expenses at the end of the year.
Stay on top of paperwork.
You need to know how much you are spending on expenses to ensure your business costs are not out of control. The only way to know that is to keep your accounting system updated with everything you spent.
Schedule a specific time, at the end of the day or the end of the week, to get your accounting system caught up. Any expenses should be recorded. It is also the time to update client payments and deposits made. As bank statements come in, review them for accuracy.
Doing updates once a month is a recipe for disaster. It is too easy to forget about something you bought four weeks earlier or to lose the receipt for it.
Get professional help.
Unless you are a professional accountant, or a tax agent, it is in your best interest to hire a certified accountant to help you with your accounting. It is impossible for the typical small business owner to understand all the tax code changes that happen each year. Plus, the business owner has other things that he or she should be focusing on, like running and growing the business.
The accounting and tax rules regarding amortization, capital expenditures, and home-office deductions are just a few of the tax-related items that a certified accountant can help with.
The success of your business depends on your diligence. You don't want out-of-control expenses or messed up taxes to bring your company down. Tracking those expenses is not something you can ignore.