Sometimes it is a real struggle for many small businesses to keep operating costs under control. In fact, paying operating expenses was the most common financial problem identified in the Federal Reserve's Small Business Lending Survey, with 47 percent of business owners saying they would be forced to use personal funds if revenue was not received within two months.
So it is essential to know that a fundamental part of financial management is proper expense tracking and accurate analysis. Because with the right approach, it can greatly increase the likelihood that a business will avoid major financial problems. By tracking expenses, a company can better plan, anticipate cash flow downturns and ensure that key business expenses are always paid.
Why Should You Track Small Business Expenses?
First of all, many types of small business expenses are eligible for a tax deduction. In some cases, special rules might apply to your business and what you could consider a deductible expense. For example home office expenses can be tax-deducted. But even those small daily expenses like coffee and postage, warns you if there are any serious spending issues before you blow your budget. If you want to put more money into your bank account, you need to find out where your business is wasting money. That’s why tracking your expenses ensures that you can reach your financial goals. By understanding your spending habits, you can make the appropriate changes so that you can ultimately achieve these aims.
What Is the Best Way to Track Small Business Expenses?
Manual cost accounting for a small business may look like this: during the week, the business owner gathers all the documents related to expenses - invoices, receipts, credit vouchers, etc. The bookkeeper takes all these documents and enters them into a book. The bookkeeper takes all these documents and enters them into a book. The bookkeeper enters all of these documents into an Excel template to ensure that cash receipts are accounted for and expenses are paid on time. These numbers are in addition to several reports that are produced at least monthly, including an income statement, balance sheet, cash flow statement, accounts payable statement, accounts receivable statement, and inventory report. The business owner reviews these reports to determine if they don't make sense or can be improved, and makes any necessary changes. But doesn't it sound very time consuming?
Expense management software for small businesses can automate much of the above process. The software facilitates this process by allowing users to capture receipts with their smartphone camera and match them to predefined expense categories using optical character recognition (OCR) technology.
Steps to Track Small Business Expenses
To learn more about how you can get rid of time consuming manual expense tracking, we collected few steps to track your expenses in automatic way :
First you should choose cash or accrual accounting
Each small business must choose a set of rules to determine when to report revenues and expenses. This ensures consistency in recordkeeping for tax purposes. In general, small businesses with annual gross receipts of $25 million or less in the three preceding tax years may account on either the accrual or cash basis (the previous limit was $5 million).
Choose software to automate record expenses in one spot
Fifty-eight percent of U.S. respondents surveyed by Robert Half said their businesses currently use either some or exclusively cloud-based solutions for accounting and finance functions. These solutions make it easy to control, organize and pay expenses, whether it's vendor invoices, rent payments or payroll. You can reduce the amount of work involved in tracking expenses and increase the accuracy of that information. In addition, the accounting software has reporting tools that provide information about expenses in each category or allow you to compare them with the previous year.
Digitize receipts with a OCR feature
Some expense management programs include or support mobile apps that allow employees or business owners to scan receipts with a smartphone camera. The software in each uses OCR technology, which converts text into machine-readable code. However, purchasing a separate receipt scanner allows organisations to scan the document, examine it and sort it - either by automatically matching the content to specific fields in the accounting software, or by providing the ability to do so manually.
Review and categorize expenses regularly
Business leaders need to understand the current and short-term financial health of their organization, and frequent reviews of expenses and related figures are an important part of that process.
Tracking enterprise spending is an important first step toward obtaining the data needed not only for better daily or monthly management, but also for making long-term decisions that will benefit employees, customers and the entire economy.
Right tool for tracking expenses
Tracking business expenses is a lot less painful if you have the right tools. These tools will help make tracking business expenses a daily habit. This will help you keep a closer eye on how much you’re spending as a small business owner. And managing your expenses better will increase profitability.
Cloud-based expense management systems give you the visibility you need to monitor and control expenses. A lean and agile organisation needs mobile tools to record, track, approve and manage expenses, so employees and managers don’t waste unnecessary time on desk admin. Automated expenses reporting is also key, so you can see costs already incurred at a glance – and crucially, which business activities they’re supporting.
You need a solution that can scale with you as your organisation grows or rebuilds. Getting people back out there and re-establishing your commercial teams will mean that people will start to incur more expenses. You need to be able to maintain control and compliance for internal and external purposes.