Did you know that cash flow is the number one reason why businesses fail? It accounts for as much as 82% of all small business fails. Cash flow is a major part of your business expenses, and to keep your business running smoothly, one of the most important things you can do is track all your expenses.
Most businesses have no idea how to keep track of business expenses, and they end up losing a lot for it. Some of the most important expenses most businesses fail to track include insurance, taxes, subscriptions, among others. If you know you have been neglecting these expenses as well, it’s about time to get to it and get your business back on track.
The question is, how do you track your business expenses? In this post, we’ll guide you through how to keep track of business expenses. There is so much that goes into it, but once you establish a system and make it a habit, you’ll never be caught off guard again come tax time.
Handling your accounting and tracking all your business expenses becomes so much easier if you have a dedicated business bank account. When starting a small business, it may seem okay for you to use your personal account for all your business expenses, because they are still very minimal. The same goes for freelancers.
To track business expenses effectively, which is vital to your business growth, you need to keep your business and personal expenses separate. Categorizing from the same accounting can be a nightmare. Come tax time, you’ll find yourself digging for the business expenses among your shopping and grocery purchases.
With a dedicated business account, however, all your expenses will be clear. After opening the account, keep in mind that you should use it for all your business expenses. Ensure you have a checking account, a savings account, and a credit card.
If you’re a freelancer and don’t need to have a business bank account explicitly, you can open a separate personal account and use it for all your business expenses.
One of the best tips on tracking business expenses is getting appropriate accounting software. Bookkeeping is an essential part of tracking your business expenses, and having an accounting system makes things easy.
Technology has made it possible to have cloud accounting software as well, and it’s easy, flexible, and convenient for any kind of business. Creating reports becomes easier, and you’ll have the ability to see your business’s financial status, which will enable you to make informed decisions.
When setting up your business accounting software, you can choose between a cash or accrual system. Most freelancers, small businesses, and sole proprietorships choose cash accounting systems, where they record transactions as they happen. If you get a cash system, you record income when you get it, and payments when you make them.
Accrual accounting systems are in-depth and are ideal for large businesses, those with employees, or those experiencing growth. With this system, you record income when products are sold, and not necessarily when you receive payment for said products. You also record expenses when you receive the bill, not when you actually settle it.
One important thing you need to know about how to keep track of your business expenses is that connecting your business account with your accounting software can save you a lot of time. When you connect the two, you will import all transactions automatically. This means you should get accounting software that allows you to do this.
The benefit of automatic importing is that it’ll not only save you the time, but you’ll never miss or forget a transaction either. All your business expenses will show up every time you log in to your software. All you’ll have to do is categorize and link to appropriate receipts.
If you have never dealt with numerous crumpled receipts wondering what you got where it’s an experience you never want to go through, so avoid it. The best way to track small business accounting through receipts is by digitizing them. You’ll save yourself a lot of time and a lot of trouble when you capture and file your receipts digitally.
Get a reliable receipt scanner, and get in the habit of capturing your receipts as soon as you incur business expenses. This way, it’ll be accounted for, and you’ll be sure you’ll never lose it. Keeping your receipts is an essential part of the business because if your business ever gets an audit, you’ll need to show proof of expenses.
It’ll be better for everyone if you have digital records. You can also use a pay stub template as it’ll make things simpler. If you are currently using paper receipts, you need to have effective organizing strategies.
You can use file folders or binders and use plastic sleeves to categorize them by month, to avoid mixing them up. You should also go the extra mile and write the purpose of your purchases on the receipts because six months later, you may not remember why you have a $10 sandwich receipt as a business receipt.
If you had lunch with a client, indicate that, so things will be easy tax time. The IRS expects small businesses to keep their paper receipts and supporting documents for at least three years. So if you can’t digitize them, find a way to keep them safe.
If you want to know how to keep track of your business expenses, then you need to understand that it must be done regularly. Make reviewing and categorizing all your business expenses a habit. You can make it a part of your weekly business reviews, which will ensure that everything is in order, and accurate.
This is everything you need to know about how to keep track of business expenses. It may seem intimidating at first, but once you open your accounts and connect it to your accounting system, the process will be seamless. You’ll only need to dedicate a few minutes every week to categorize all transactions and ensure everything is accurate.
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