How to Keep Track of Business Expenses in 2022
Meeting deadlines and policies and setting up a business workforce to manually punch in or confirm data can be very expensive. As a result, you could find a staggering fall financially, which can have a massive negative impact on you and your business.
In this article, we will be discussing important issues on how to keep track of business expenses in 2021. If you are caught between the gruesome struggle to keep your business up and running while calculating your business expenses, you need to be organized to do so.
You need to start first by making a to-do list:
- PC, Laptops and other related equipment
- Internet, Telephone and various other bills
- Costs in advertising and marketing
- Bank-related fees
- Petrol, Transport and other related costs
- Shipping and posts.
This, in turn, will make you aware of the cash flow projection, and you won't have to wonder about your tax estimates and can give you a clear understanding of your profitability rates, whether they are low or high.
Keeping track of business expenses can also help when you need a bank loan or want other business investment companies to invest in your business.
Other steps to track your business expenses include but are not limited to:
- Using receipt scanners for digitizing your receipts
- Using some form of software to keep everything in place, especially your expenses
- Opening a bank account and card for your business
- Using that bank account to connect to your account software for fast import of transactions
- Prioritizing, reviewing and engaging with your business expenses daily
Understanding your business's financial set up is essential. It gives you a clear overview of where you stand and what you need to do by making informed decisions. Tracking business expenses also plays a crucial role so as to see how much more money you have to spend at later stages. It also helps you to understand your cash flow projection. Cash flow is the number one problem why businesses come to a dead end, so it is essential to know about your cash flow as it is vital.
Classifying and tracking your annual business expenses is, without a doubt, a great way to make tax time more attainable. Not only will it reduce work and increase costs for your employees (accountants in particular), but it will also save you time and trouble.
Now that we've gotten a clear overview of business expenses and how to manage them effectively, let's know a little more about the types of business expenses.
Types of Business Expenses
- Operating expenses
- OPEX, short-termed for Operating Expenses are small expenses that businesses encounter regularly.
- OPEX has two categories:
- Selling, General, Admin Expenses (SG&A)
- Cost of Goods Sold (COGS)
- Both expenses are cleared off at the same time in which they were sustained.
- Non-Operating Expenses
- These types of expenses aren't really connected or have a connection to the specific parts of the business but are still sustained daily as and when required.
- The examples for non-operating expenses generally are:
- Expenses that have interest
- Assets disposal deprivation
- Out-dated charges on inventory
- Expenses in settlement of lawsuits
Depending on your business expenses situation, it is further to be noted that non-operating expenses might or might not apply to you.
These types of expenses are generally encountered with a new project that a business gets or when a business puts money to enhance and vitalize its future business outcome and profitability.
Types of Capital or CAPEX expenses:
- Equipment and machinery
Now coming to a more interesting and intuitive part of the article.
Why is it for your business to track its expenses?
People complain and argue over why is it that the expenses of a business need to be calculated? Why is it so necessary? Well, simply put, this way you will know how much your business is spending on a daily, monthly and yearly basis and not only that to calculate how much you are earning and is it more than what you're spending.
Cash Flow Improvement
Making records of your daily expenses is the only way to understand how much cash flow is being obtained. This way, you will learn where your money is being invested and how much is going into your pocket.
When your company adds a record of your monthly expenses, it helps in tax filing. You can use an excel spreadsheet to update each and every month to surveil your spending. The spreadsheet can consist of:
- Apps Utilities
Managing Employee Reimbursements
It is important to keep track of expenses, especially when you have staffed employees working in the company. Furthermore, the employees need to make sure that they are calculating the expenses for which they are paying by themselves or by using credit cards. They should then be respectively paid and an extensive report needs to be made in order for them to get paid back.
Business Forecasting Done Accurately
An extensive research-based spreadsheet ensures that you make the best business decisions and helps in tracking the businesses expenses. The profit the business is making can be determined by making monthly spreadsheets allowing you to see, examine and analyze the amount of profit you are gaining. This is one of the best and simpler way of understanding just how much the business expenses are and you will as a result also make great business decisions.
You Keep Your Employees Happy
Plus, you will also be keeping your employees happy when they get appropriately reimbursed after they have forwarded the various amounts of receipts that they had paid for from their own pocket. Precipitating the employees' reimbursements ensures the employee stays true to their work and promotes a healthy employer-employee relationship.
You can calculate the business's profitability
Here, you need to understand business profitability and need to be aware of how important it is for the business. As discussed earlier, you need to know how much money is coming in, meaning the profit the business is making and the calculation of the business's profitability may bring in more investors and help in financial situations.
In this article, we have already understood how important it is to keep a record of everything, from spreadsheets to business profitability. So if a business does not perform these important factors, it basically is why it is so hard to precise records of business expenses which can lead to several atrocities.
Another way, in case you don't have all the calculations, another way is to track your income and expenses, which will give you an overview of the amount of profit your business produced without having to search through data.
Tracking business expenses and income will help you to avoid estimates about the profit you made. This is a mistake made by many businesses who, when find that there is an increase in sales, think that they're making a profit which is not the case and is due to not keeping track of daily business expenses.
Hiring a Bookkeeper
Hiring a bookkeeper can help in different ways. Bookkeepers can:
- Prepare your financial reports properly
- Proper accurate and compliant financial statements
- Make sure to find deductions in tax that you may not have picked up
- Provide advice for preparing taxes in order to get tax credits and business expense claims
As a small business owner, you need to ensure what you're spending, where you're spending, and how you're spending in order to compete with other businesses, respectively.
You can also set up software programs to ensure everything is in order from your personal expenses to your business expenses. You not only will be organized but the software that you've selected will give you an easier approach for management and tracking. This way you won't have to get frustrated or get headaches about tax return and you can focus your attention on business growth.
While you're focusing your attention on business growth, it's important to note here that you need to keep an eye on your business expenses and costs. Therefore having an established business bank account along with a credit card would be a great feature.
Make sure employees meet the policies on the business credit card. You need to establish clear-cut approvals for expenses for your employees. The employees can then hand out reports on expenses and get reimbursed quickly. Mobile and other digital applications can also be used for this.
Keeping a proper and fast track of business expenses can be overwhelming, it helps you to:
- Understand where and how much you're spending
- Manage your money and make an improvement
- Prepare your taxes
- Get money back
- Have happy employees overboard
- Calculate your business's profitability
All these advantages will require you to invest in tools that would act as an aid in business expenses tracking. Apart from saving trouble in manually entering data on business and various other expenses, the tool will also help you be on the right track of time and give you firm control over your investments.