As a business owner, you know it's important to not only bring in revenue, but also limit your company's expenses. Yet, since there are so many expenses associated with your business, you know it can sometimes be hard to keep track of everything. Should tracking expenses fall by the wayside, you and your CPA know this can take you from having a very profitable business to one that is barely surviving. To keep your business moving forward, here are some of the best strategies you can use to keep track of your business expenses.
Open a Business Bank Account
If there is one thing your CPA will tell you time and time again, it is to never mix your business and personal finances in the same bank account. If you do, problems will always ensue. Instead, it will be much easier to track your business expenses and document them for tax purposes if you open a business bank account. Your CPA will tell you this is also a good idea because by having a separate business bank account, this will provide personal liability protection should your company experience financial issues at some point.
Use a Dedicated Business Credit Card
After you open your business bank account, it's also a good idea to have a dedicated business credit card. Again, this will ensure that you don't combine business expenses with personal expenses on your personal credit card. Many credit card companies will also offer businesses certain perks with these cards, especially on travel costs. Once you obtain the credit card for your business, make sure you authorize only a select few besides yourself to use the card, and be sure to go over your monthly statements very carefully to ensure everything is in order. In particular, make sure that no personal expenses have accidentally been charged on the business credit card.
Decide Between Cash or Accrual Accounting Method
When you start a business, you and your CPA will sit down and decide whether you want to use the cash or accrual accounting method. If you want an easy way to keep track of your expenses, your CPA may suggest using the cash accounting method. Easy for small businesses, it records the transaction when payment is received, with expenses being deducted during the tax year they are paid. If you choose accrual accounting, it will be more complex, since it requires double-entry bookkeeping, so discuss this with your CPA before deciding which will be best for tracking your expenses.
Use Great Bookkeeping Software
If you really want to make the task of tracking your business expenses as easy as possible, your CPA will definitely suggest you let the computer do the work for you by investing in great bookkeeping software. This will let you easily monitor, organize, and pay your expenses, reducing the chances you'll miss something or have certain expenses be much more than you expected. Bookkeeping software will decrease the work needed to track your expenses, and can also give you real-time information that is very accurate. As an added benefit, the software will organize your expenses into categories and sub-categories, and will let you examine year-to-year spending to see which parts of your business incur the most expenses. Finally, when you use bookkeeping software, you can simply send the digital file to your CPA whenever they need to review or work on it.
Connect Your Accounts to Your Software
As you use your bookkeeping software more and more to track your expenses, you should also consider connecting your bank accounts and credit card accounts to your bookkeeping software. By doing so, you will be able to import files into your system, enabling you to have information at your disposal 24/7. This will make reconciling statements much more efficient, let you spot potential problem areas regarding expenses much faster, and allow you to make immediate spending adjustments as needed.
Keep Track of Your Receipts
Even in today's digital age, chances are you still have plenty of paper receipts associated with your business. If so, you need to pay attention so that these receipts are properly stored. Should you not do so and lose one receipt after another, it will be almost impossible to know what you are spending on various things. Whether you use a binder, an old-fashioned file cabinet, or a manila envelope marked "Receipts" on the front, having one central spot to keep all your receipts will make your life and that of your CPA much easier.
Don't Forget Mileage
In case you haven’t noticed, gas prices have been a bit high lately. If you use a vehicle for business purposes, always keep careful track of your mileage and fuel costs, since these have rapidly become some of the highest expenses for businesses large and small. A great way to keep track of this is by using the Everlance app, which can be used to track your mileage for both tax and invoicing purposes.
Use a Spreadsheet
If you have recently started your business or just want to have a simple, low-tech way of tracking your expenses, your CPA can suggest you use a spreadsheet. However, one drawback to using a spreadsheet is that it will mean you will be manually required to enter every expense you incur during the day, which can be hard to do if you get busy. Yet if you feel this will work for you, a spreadsheet can let you create your own categories and customize them as needed. Should you not be quite ready to invest in more expensive accounting software and all its bells and whistles, a spreadsheet may be fine for keeping track of your expenses.
Now that you know the various strategies that can be used to keep track of your business expenses, schedule an appointment with your CPA to discuss which ones may work best for you and your business. Once you do, you'll find keeping track of your company's expenses is much easier than you ever imagined.