How to Keep Track of Spending for Businesses

10 Min. Read

How To Track Your Small Business Expenses (4 Easy Tips)

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.

Tracking your business expenses also makes tax time a lot simpler as many expenses can be claimed as write offs. If you track your expenses on a regular basis you're more likely to not miss potential deductions. This means you'll pay less at tax time (or get more back).

With the help of a business expense reporting app, you can easily keep on top of your daily expenses. Keeping track of your expenses is imperative, as your capital dictates much day-to-day cash flow you have, as well as how much room your business has to grow.

In this article, we'll cover the following tips to track your business expenses:

Open Business Financial Accounts
Store Receipts Properly
Make a Spreadsheet
Use Cloud Accounting Software

NOTE: FreshBooks Support team members are not certified income tax or accounting professionals and cannot provide advice in these areas, outside of supporting questions about FreshBooks. If you need income tax advice please contact an accountant in your area.

1. Open Business Financial Accounts

Freelancers and small businesses may find that the line between their personal and business finances is pretty blurry. Come tax time, you may find yourself digging for business expenses among your grocery and clothing purchases.

Open business financial accounts so that business-related expenses are crystal clear. Then use your business accounts for all business purchases. Having a finance tracker simplifies the process of organizing your finances, allowing you more time to focus on the important things.

You'll need to open:

A business chequing account
A business savings account
A business credit card

It also pays to put your business expenses on a credit card with great rewards. Some credit cards offer cash back on purchases. Others let you collect and redeem points for flights and hotels. Forbes has a list of some of the best business credit cards.

Entrepreneur recommends avoiding using cash, when possible. Cash is too easy to spend, hard to track and only has a receipt as a backup, unlike a digital transaction which has a record in your bank statement and a receipt. It's better for your business, better at tax time and definitely better if you get audited to use debit and credit for purchases.

2. Store Receipts Properly

Paper Receipts

Here are some strategies to keep paper receipts organized:

Keep a separate envelope in your purse or bag for business paper receipts. If you can't commit to filing your receipts daily, set aside time on a weekly basis to put those receipts away. Friday afternoon is one option--and be sure to add this task as a recurring appointment on your calendar.
Use file folders. At the beginning of the year, make one for each month and file your receipts accordingly. Use either a filing cabinet or an accordion folder. Tracking receipts will be so much easier with a dedicated filing folder for each category - personal, business, etc.
Use binders. Buy plastic sleeves and label them by month or category. If you have lots of receipts, organizing by category may make things easier come tax time.

Don't forget to write on your receipts what the purpose of the purchase was. A receipt for a $10 sandwich six months ago won't tell you much unless you write down that it was bought during a lunch with a specific client.

It's a good idea to keep a detailed business calendar as a backup, whether on paper or in Google or Outlook. Then you can reference back and see who you had lunch with on June 2 of the previous year.

Remember, the IRS requires small business owners to keep their paper receipts, as well as any other supporting documentation like bank statements, for at least three years.

Digital Receipts

There are many apps that make it easier to store receipts digitally. Plus, if you scan your receipts you don't need paper backups, according to Entrepreneur.

The FreshBooks app has a feature that lets you easily photograph and store receipts in the cloud, while automatically adding the expense to your books. This makes it one of the best expense tracker apps out there, as you won't need to individually fill in the amount every time. Keeping track of your receipts has never been easier.

You'll also want to track your mileage if you use a vehicle for business purposes--businesses can claim mileage as a deduction on their taxes. The standard mileage rate for 2018 is 54.5 cents per mile, according to the IRS.

FreshBooks integrates easily with Everlance, an app that tracks your mileage for both tax and invoicing purposes. The app is free for up to 30 trips per month and it sends your mileage to FreshBooks, where it's automatically added to your expenses. Having an expense tracker app gives you the ability to know not only exactly where your money is going, but also how much you should be setting aside to dedicate to every section.

3. Make a Spreadsheet

This option works if you prefer a low-tech approach to tracking your expenses or if you're just starting out as a business. That said, as your business grows (and your number of expenses grows as a result) you'll want to use a more sophisticated tracking method. One method is cloud accounting software, which is covered in the next section.

Creating your own spreadsheet from scratch involves manually keeping track of every expense you make throughout the day, instead of using automatic expense trackers.

You will need to make your own categories and sort them into specific columns. If you have access to either Excel or Google Sheets, this should be fairly easy to do by following the guidelines below.

Spreadsheets are also easy to import into your accounting software to batch add expenses. Most accounting applications will be compatible with Excel or Google Sheets.

Make a spreadsheet in Excel or Google with the following columns:

Date
Category
Vendor
Cost
Purpose

For example:

Date	Category	Vendor	Cost	Purpose
February 1	Cell Phone	Telecom Inc.	$50	January cell phone bill

Consider using the following categories:

Marketing
Client meals
Home office or office rent/mortgage and utilities
Travel expenses
Office supplies

4. Cloud Accounting Software

By 2020, more than 90 percent of small businesses will use cloud accounting software, according to Accountex. A big reason for this high adoption rate: owners want to access their accounting data on their cell phones.

Accessing bookkeeping/accounting software on the go is an enticing pull for busy entrepreneurs and business owners who may not be able to make it into the office regularly. With mobile expense tracking, you can access a network of information with the touch of your finger.

Cloud accounting software also lets small business owners add expenses on the go, whether they're traveling to a conference or out meeting a client.

This software also connects to your bank account and credit card so your expenses update automatically (and daily!). This is a big reason to use digital transactions over cash. Instead of having to print out your receipts and remember every transaction you make throughout the day, a solid expense tracking app will simply record the important details for you, so that you can spend more time focusing on the bigger things.

Your tax records will also be more secure, should you ever be audited. Spreadsheets can disappear if your computer crashes. Paper receipts can get lost. But accounting data stored in the cloud keeps all your records in one place, securely.

A final benefit: your subscription to your cloud accounting software is usually tax-deductible.

People Also Ask:

How Do I Keep the Books for My Small Business?

How Do I Keep the Books for My Small Business?

Set up accounting books for your small business in five easy steps:

1. Choose An Accounting System

Most new small businesses choose single-entry bookkeeping for its ease of use. With this system, you record income when you receive it and expenses when you pay them.

Using a bookkeeping system is a vital part of understanding the viable future and growth of a company, as without the numbers to back it, a business will not be able to flourish to the best of its ability.

An accounting system that helps track expenses makes this stage of the financial process much more streamlined. You will know every step of the financial process that your business has undertaken, and will be able to make the best decisions for the future of your company accordingly.

Growing small businesses will want to transfer to a double-entry method to take advantage of its advanced financial reporting. Choose accounting software that lets you easily make the switch from single to double-entry bookkeeping. With financial tracking, you will know all there is to know about the ins and outs of your company.

2. Choose a Recording Method

Recording transactions by hand is possible, as is making a custom spreadsheet. But cut down on errors by using accounting software that does the calculations for you. Using small business accounting software keeps all of your financial information efficient and up to date, simplifying the process for you down the line.

If you're really against doing your own books you can hire an accountant or in-house bookkeeper, but this route is usually too expensive for a small business.

3. Set Up Accounts

Accounting software will suggest categories for your transactions but you'll want to add or subtract categories specific to your business.

Common small business accounts include:

Checking account
Savings account
Credit card
Payroll
Accounts payable (money owed by a company)
Accounts receivable (money owed to a company)
Petty cash (physical cash on hand)
Vehicles

4. Set Up a Business Bank Account

Separating your personal and business finances will help at tax time. Then you can connect your business accounts to your accounting software without worrying about importing your personal Netflix subscription. Make sure to reconcile your bank statement monthly with your books. This means checking the records in your accounting software against those in your bank statements.

Checking in on your account statements is a vitally important step to making sure everything is running smoothly. Although accounting software helps immensely towards ensuring that no errors are being made, you'll still need to keep an eye on your software yourself.

For tax reporting purposes, you'll want to make sure that your information is 100% accurate and up-to-date.

5. Make an Invoice Template

Set up your invoice template, whether in your accounting software or by downloading a template online. Most service-based small businesses offer credit, meaning they send an invoice after a project is complete and let the client pay at a later date.

Payment terms need to be included on each invoice. This should include your contact information, how to pay you and when the invoice is due--30 days after sending the invoice is a good rule of thumb. Payment processing information ensures that no mistakes occur down the line and that the money will make its way into your account correctly.

Setting up payment terms can help you get paid on time and makes it clear when you should be paid. This will improve your cash flow, which is hugely important for a new small business.

How to Keep Track of Spending for Businesses

Source: https://www.freshbooks.com/hub/accounting/keeping-track-of-business-expenses