There are the fun parts of owning a small business: meeting new people, expressing your creativity, and earning money. Plus, there’s the not so fun parts: paper work, taxes, and tracking expenses.
Let’s see if we can make that second part a little less painful with a few tips for tracking business expenses. When you own a small business, any and all advice is welcome in order to learn how to grow your business and how to improve your profits.
How to Track Business Expenses: 8 Tips for the Small Business Owner
1. Get help. Especially if you are just now setting up your business. Getting off on the right foot will save you a big headache later, and you’ll learn what needs keeping or tracking so that you know what you can let go of.
If you’ve been in business a while. then you might want to have someone come in and get you organized so that you can make the most of deductions and expenses when it comes time to pay the tax man.
2. Stay on top of paperwork. In order to deduct most expenses, you’ll need to keep record of the purchases such as receipts, cancelled checks, or bills. Spend some time at the end of the week entering receipts or downloading them from your bank or credit card website into your accounting program. Always assign expenses to categories such as advertising, utilities, office supplies, etc. You should also save any physical business receipts for 7 years in case the IRS or your tax preparer needs to see them.
3. Keep business and personal financial records separate. Open separate bank accounts and credit/debit cards that you will use solely for handling business expenses. It’s much easier to keep track of business receipts if you don’t use the same credit card to pay for both personal and business expenses. If you need to find a forgotten business expense later in the year, then you’ll only need to search through business transactions rather than both personal and business.
4. Trim the excess. Are your expenses more than your budget or do you need to improve your profit margin, so that you can buy a new high-priced piece of equipment? Look at each of your expenses to see where you might be able to cut back.
5. Keep track of your time. If you want your expenses to be accurate in order to price your items correctly, and therefore, be sure you are making a profit, then keep track of your time. I use Fresh Books that has a built-in timer to track how long a task takes me. I also downloaded the app to my phone to track time when I’m away from my computer.
6. Use an online calendar. Using an online calendar allows you to see expenses from your phone and your computer or notebook. Be sure to schedule in regular payments like rent and credit card payments in order to avoid paying late fees. Also, use the calendar to track expenses if you are trying to get a handle on your budget.
7. Don’t forget your vehicle. Track your mileage and other related vehicle expenses in a separate notebook (I find it easier to track if I keep the notebook in the vehicle) and update it regularly. Don’t just track how many miles it was from point A to point B, but make sure to jot down the mileage too.
8. Use accounting software. Not only can accounting software make it easier to balance your checkbook, but you can also run a profit and loss statement monthly, quarterly, or whenever you need to see where your profit margin stands.
It’s really not so hard to track your expenses if you use today’s technology, so keep up with it on at least a weekly basis, and ask for help if you need it. Because, hey, everyone wants a successful small business!