How to manage and keep track of business expenses

You have to manage and keep track of business expenses so that you can budget, pay taxes and make informed decisions. This article outlines how to manage and track business expenses. 

It is important to manage expenses: If you don’t keep track of your business expenses your finances can get out of control. Whether you run a small startup or a large corporation, keeping track of expenses helps you budget, pay taxes correctly and make informed business decisions.

Let’s take a look at the top 10 tips that will help you manage your business expenses. 

1. Make a budget 

The first step in managing business expenses is creating a detailed budget. A budget outlines expected income and expenses. The budget should be based on your existing income and expenses, adjusted for future projections. Divide the costs into categories such as payroll, marketing, office supplies, travel, and unexpected costs. Regularly review and update the budget to ensure it remains aligned with your business goals and the reality of running your business. You can download our free budget template to get started!

Read also: Running a business? How to set up a budget

2. Use accounting software

Using accounting software is essential to keep track of business expenses. Doing it all in Excel is difficult and takes a lot of time. Modern accounting tools, like QuickBooks, Xero, or FreshBooks, automate many of the tasks for you, and help you do it correctly. You can organise expenses, generate financial reports, and even integrate with your bank accounts for seamless tracking. Automation reduces the risk of human error and saves you time.

3. Set up a separate business accounts

It’s important to separate personal and business finances. This is especially important for small businesses where personal life and work life go more hand in hand. Opening a dedicated business bank account and using a business credit card ensures that all business transactions are collected in one place. This simplifies bookkeeping and helps you remember to claim tax deductions for all your business expenses.

4. Track expenses in real-time

Tracking expenses in real-time helps you retain documentation, which you need to claim tax deductions, and helps you remember all your business expenses. Encourage employees to submit receipts and expense reports immediately after a purchase, and do the same when you pay for something. You can even use mobile apps linked to your accounting software to capture and categorize expenses on the go. 

5. Keep receipts and documentation

Proper documentation is crucial for tax purposes and financial audits. Make sure to store your receipts, invoices, and related documents. Your business can get tax deductions on almost every expense, as long as you have documentation.

See also: Understanding tax deductions for small businesses

 Many businesses have digital storage solutions, and scanning and storing receipts electronically reduces clutter and makes it easier to retrieve specific documents. Make sure to do regular backups to prevent data loss.

6. Implement expense policies

Creating clear policies for business expenses helps you manage costs. Define what is considered a business expense and what is reimbursable. Set limits for different categories of expenses, such as travel, meals, and entertainment. Ensure all employees understand these policies to avoid unnecessary expenses. 

7. Regularly review and reconcile accounts

Regularly reviewing and reconciling accounts ensures that your financial records are accurate. Monthly reconciliations allow you to compare your accounting records with bank statements to identify discrepancies. Addressing these issues promptly helps you maintain an overview of your finances and prevents potential financial loss.

8. Monitor cash flow

Cash flow management is key to expense tracking. Monitor your cash flow regularly to ensure that your business has enough money to cover its obligations. Use a cash flow statement to analyze your income and expenses, and adjust your spending accordingly so that you’re always able to pay your bills. 

See also: Mastering cash flow management for small businesses. 

9. Make it easier to pay taxes

Accurate expense tracking makes it easier to pay tax. Categorizing and documenting expenses throughout the year helps you identify deductible expenses and reduces your taxable income. 

10. Analyze and optimize expenses

Regularly analyzing your expenses can reveal opportunities to cut costs and optimize spending. Negotiating with suppliers, finding more cost-effective solutions, or reducing waste are all strategies that can improve your bottom line. Remember that reducing a lot of small expenses can improve the liquidity of your business.