Small business owners should keep a record of all minor and major expenses. It is very important to track your small business expenses regularly. Expense reports are an important element of business financials.
This article covers:
- Why should I track my small business expenses?
- Open financial accounts for business
- Keep the record of receipts
- Make a spreadsheet
- Cloud accounting software
- How do I keep the books for my small business?
Why Should I Track My Small Business Expenses?
The profit and loss of a business depend on its expenses and revenues. It helps you in expense management on time and avoid irrelevant expenses if possible. It also helps you to write off your expenses regularly to decrease tax amounts in the future.
Here we are sharing few tips with you to track your small business expenses:
1. Open Financial Accounts For Business:
You need to categorize your business finance and personal finance separately. If you keep on spending money on your items without any record, it may cause you trouble at the time of tax payment. The first thing you need to do is to categorize your expenses and open separate business accounts, such as:
- A business checking account
- A business savings account
- A business credit card
If you shift your business transactions on credit cards, it gives you many benefits. They offer many advantages, including:
- Cashback on purchases
- Redeem points for flights and hotels
It is more appropriate to use credit and debit cards rather than using cash for purchasing. It keeps digital receipts of your transactions and expenses.
2. Keep The Record Of Receipts:
Billing receipts are in two forms:
- Paper receipts
- Digital receipts
You can organize paper receipts as:
- Put them in a separate envelope and arrange them on weekends.
- Make separate file folders for every month and put the receipts in them every month.
- You can use binders for your files and label them by month or category.
This categorization will help you at the time of tax payment and in other legal processes. You should write all the purchase details, including amount, reason, time, and date.
Another way of record-keeping is to keep a business calendar having all the details of expenses and their causes. It helps you to find the previous records immediately.
According to the IRS, you should keep the paper receipts with you for at least three years.
Many apps and software are working to store your data, including receipts and other documents. In that case, you don’t need any paper backups. The Freshbook app can help you save the photographs of receipts.
If you are using a vehicle for your business work, you have to record car mileage for tax deduction purposes. According to the IRS, the standard mileage rate for the year 2018 is 54.5 cents per mile. You can also use apps like Everlance to track your business’s car mileage and send it to Freshbooks, where it automatically adds up to your expenses.
3. Make A Spread Sheet:
This method works for you if you are new to a business field and do not want any high-tech approach to track your expenses. If your business grows, you can switch to high-tech tracking methods, such as Cloud Accounting Software.
You can make spreadsheets using Excel or Google with the following columns:
|July 1||Cell phone||Telecom.Inc||$40||June cell phone bill|
You can sue many other categories, like:
- Regular meal
- Office supplies
4. Cloud Accounting Software:
Cloud accounting software contains all the data of your business expenses. You can easily manage it on your cell phone. It helps small businesses enter the expenses on the spot for an emergency trip or meeting. It connects you to your bank accounts and credit cards, so you can easily access your transaction data. In this software, your tax records are secure, and you can view them whenever you need them.
How Do I Keep the Books for My Small Business?
There are five easy steps to set up accounting books:
- Choose an accounting system
- Choose a recording method
- Set up accounts
- Set up business bank accounts
- Make an invoice template
1. Choose An Accounting System:
Business usually chooses an accounting system to record income and expenses regularly. Most businesses opt for single-entry bookkeeping because it is easy to use. Small businesses need to shift from single-entry to double-entry bookkeeping when they are overgrowing. They can choose accounting software for this purpose.
2. Choose A Recording Method:
You can choose a recording method to record your transactions by making a custom spreadsheet. You can also hire an accountant for this purpose to make your work easy. Accounting software will help you in overcoming errors and do calculations for you.
3. Set Up Accounts:
There are different categories of accounts you can choose for your business. Accounting software suggests you many categories, but you can add or subtract them accordingly.
Common accounts categories for small businesses are:
- Checking account
- Savings account
- Credit card
- Accounts payable (money owed by a company)
- Accounts receivable (money owed to a company)
- Petty cash (physical cash on hand)
4. Set Up A Business Bank Account:
You should set up your separate business account as it will help you to categorize the personal and business expenses at the time of tax payment. You can connect accounting software to your business account and manage your daily transactions through it. You must keep track of your bank statements to match them with the records in accounting software.
5. Make An Invoice Template:
You can download an invoice template or set up the one in your accounting software. It will help you to manage invoices anytime.
Small service-based businesses usually offer credit (receive payment after the completion of a project). Your invoice should have a clear payment term on it. The essentials of an invoice are:
- Date of issue
- Due date
- Product or service information
- Contact details
- Payment terms and conditions
- Late fee charges (if any)
It is very important to have a professional invoice to get paid on time to keep the cash flow.