How Can Business Expenses Be Tracked?

The first step in doing so is to separate your company and personal spending. This can help you figure out how much money you’re spending as a small business owner. Thus, controlling your expenses will boost profitability.

Many small business owners keep track of their expenses using Microsoft Excel. However, as your firm grows, this strategy increases the likelihood of human mistake and can be difficult to organize.

What are the company expenses?

Business expenses are those expenses that are directly related to launching and operating a business. They include merchandise purchases, wages and salaries, and so on.

There are two categories of business expenses: cost of goods sold, which are the costs of manufacturing your product, and running expenses, which include rent, salaries, business licenses and permits, and self-employment.

Businesses must manage and categorize their spending since some expenses can be claimed as tax deductions, resulting in significant cost savings. This implies you’ll pay less in taxes. It will show lenders that your company is financially responsible and may be a dependable borrower should you require finance.

Follow these steps to track business expenses:

1. Open a bank account for your business.

You will have to open a business bank account as a newly formed company owner. When using your personal bank account for business purposes, as is sometimes the case, keeping track of and accurately recording your costs would be lot simpler with a dedicated business account.

You must open:

•  A company checking account
• A savings account for commercial purposes
• A credit card for businesses
• 2. Select a suitable accounting program

You can choose the type of accounting system that is best for your company. Although selecting an accounting software program that suits your needs is the ideal course of action, spreadsheet programs like Microsoft Excel can also be used to keep track of your company’s revenue and outlays.

3. Taking Care of Receipts

The following are some methods to maintain the organization of paper receipts:

• Store business paper receipts in a different envelope in your handbag or purse.
•  Employ file folders. Create one for every month of the year and file your receipts appropriately.
• Put binders to use. Invest in plastic sleeves and mark them according to the month or category.

Digital receipts may be stored, and there are a lot of apps available to make this process simpler.

4. Make a Spreadsheet

This option is suitable if you want to track your spending using a low-tech method when you first start your firm. As your company expands, you should employ a more advanced tracking system.

To batch add expenses, spreadsheets are also simple to upload into accounting software. Create a Google or Excel spreadsheet with the following columns:

5. Choose an accounting technique.

For small business owners, the most straightforward accounting technique is the cash-basis method. When using the cash approach, you record expenses as soon as you make a payment and income as soon as you get it.

Compared to the cash-based approach, the accrual basis is more complicated and makes use of more accounting categories. Regardless of when you receive payment or receive income, accrual accounting records income and expenses as they are incurred.

When choosing your accounting method, keep your company’s size in mind.

6. Track and evaluate business purchases using software.

Most accounting software packages build categories for expenses. You’ll spend less time preparing your tax returns as a result.You can manage personal capital, compute monthly spending, and even sync your credit or debit card with a lot of budget tracking applications.