5 ways to track expenses for your small business
Many small businesses struggle to stay on top of their business expenses. According to the Federal Reserve Small Business Credit Survey:
Tracking expenses for your small business will help you strengthen your financial foundation, tackle financial challenges, and meet your essential business expenses. Read through this business expense guide from your experts at Liberty Bay to learn more.
Business expenses describe any costs needed to operate your business. Subtracting your expenses from your revenue will show your net profit or loss.
The two main categories of business expenses are direct and indirect expenses, but there are a few other helpful labels you can use to track your expenses:
You should track these expenses in an expense record, or a list of all your costs during a specific period. Organizing your expenses by date, client, or other categories will help you get a clearer picture of your business’s financial health.
Here are just a few things tracking business expenses can help you achieve:
The more closely you track your business expenses, the better you can analyze your financial health for budgeting, planning, and optimizing purposes.
There are a few different ways you can track expenses for your small business. Read through the following steps, and make sure to reach out to your Liberty Bay experts if you have questions.
All small businesses should choose a bookkeeping method to track expenses accurately. Bookkeeping is an organized method of monitoring financial transactions. Small businesses typically use one of these methods:
Once you have chosen a method for reporting income and expenses, you can decide what tools you need to monitor financial transactions related to your business.
You need documentation to claim something as a business expense. To monitor your business-related financial transactions, you will need to record documents such as invoices, receipts, and other transaction records.
Paper receipts can be difficult to track, so it’s best to avoid using cash. Alternatively, you can digitize receipts using a scanner or app. Digitally capturing and filing transaction records will help you keep an organized record for tracking expenses and preparing for tax season.
Whether you are using paper or digital invoices and receipts, make sure you store and organize your information correctly to make it easier to monitor and report your income and expenses.
You can record your transactions in a spreadsheet to make sure your revenue and expenses are accounted for. Set up a template to track each transaction’s purpose, type, amount, and more.
If tracking all of this information yourself seems daunting, cloud-based accounting software solutions can automate record-keeping and expense tracking all in one spot. These solutions simplify the work needed to monitor and organize expenses, make payments, scan and store receipts, and overall keep your financial health high.
Many of these solutions integrate with your various business bank accounts to make the tracking process even easier.
If you don’t already have dedicated business bank accounts, we highly recommend looking into some small business banking services. Separating your business and personal expenses makes it easier to track your financial transactions, claim them as deductions, and take advantage of personal liability protection.
Recommended business bank accounts include a business checking account, a business savings account, a business credit card, and a merchant services account if you need to accept credit and debit card transactions from customers. Having these accounts will allow you to organize expenses, cover cash flow shortfalls, and establish good business credit.
When you open a business banking account with Liberty Bay, you can sync your account with Quicken to make accounting a breeze. Learn more about your digital banking options at LBCU.
Tracking your transactional data will allow you to produce reports and statements on essential aspects of your finances, such as your income, inventory, cash flow, accounts payable, and accounts receivable. You should plan to review these reports regularly to identify right away if something doesn’t look quite right.
Accounting software can also increase the accuracy of your reports and even generate them automatically for you so you can review your spending categorically or compare information across the years. Regularly analyzing your expenses will help you keep a close eye on your business’s financial health.
Understanding how to track expenses for your small business can empower you to review, analyze, and use your numbers to stay stable and grow your business. The pandemic has shown us more clearly than ever how essential this skill is for the financial health of your organization and your ability to make informed business decisions.
Want to learn more? Go through our free FA$Ttrack playlist on Small Business Essentials or reach out to our experts for more information. We’re here to help with whatever you need, anytime you need it.
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