Keeping track of your business expenses is a critical aspect of running your business. Not staying on top of the financial side of your business can create profitability and cash flow issues, significantly impacting your bottom line. While the process is time-consuming, taking care of your business books will save you stress in the long run.
There are various expenses associated with owning a business. According to the Internal Revenue Service (IRS), "Business expenses are the cost of carrying on a trade or business. These expenses are usually deductible if the business operates to make a profit."
If you're a business owner or aspire to be one, you want to know how to track expenses to maximize tax deductions on your tax return. There are several options to help business owners manage their financials with ease and accuracy. One is Skynova's all-in-one invoicing and accounting software.
In this article, we'll review the best practices for tracking business expenses.
How Do Small Businesses Track Their Finances?
There are several ways small business owners manage their expenses, from creating a bank account to using expense-tracking software like the one from Skynova. Some rely on accounting software due to its ease of use, while others depend on the financial services provided by a professional bookkeeper or certified public accountant (CPA). Whichever category you fall under, there are measures you can take to track your small business expenses.
Our software is specially designed with small businesses in mind and can help you stay organized, bill at your convenience, and get paid faster. Let's explore actionable steps you can take to simplify the financial aspect of your business and help streamline your expenses, beginning by opening a small business bank account.
Open a Small Business Bank Account
To get the financial side of your business on the right track, start by opening a business bank account. This will help you track business expenses and keep your personal accounts separate from your business. According to the U.S. Small Business Administration (SBA), "Common business accounts include a checking account, savings account, credit card account, and a merchant services account."
While it may not be the first thing that comes to mind, a business credit card offers several advantages for small business owners. A credit card account can allow you to build your business's credit history and help with making large purchases that are or may become necessary for your business. Items like a new computer, fuel for your work vehicles, office supplies, and even travel expenses can be paid for with a credit card.
A business bank account is especially beneficial during tax time. With your bank account statements, you can easily record tax-deductible expenses, helping you file your tax return with confidence. File paper bank account statements or save digital copies on your computer for reference. In addition to saving bank account and credit card statements, be sure to save paper receipts related to your business spending. We'll discuss more about tracking business receipts in the next section.
Track Your Receipts
For tax purposes, develop a method of tracking receipts that works best for you. This can be a physical file folder specifically for receipts, an Android or iPhone app that securely saves receipts, or accounting software, such as that from Skynova.
As part of your expense management, the IRS requires business owners to keep supporting documents like "sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks" for a minimum of three years. However, the period of limitations for amending a tax return to claim a credit or refund depends on the "action, expense, or event."
As a result, you should keep your receipts safely stored in a filing cabinet or computer folder, or digitally uploaded onto an online platform, such as Skynova's accounting software.
Document All of Your Expenses
It may seem like a lot of paperwork to manage but saving receipts for all business expenses
is crucial for the financial health of your business. The IRS can deny undocumented expenses. Be sure to document all "ordinary and necessary" expenses related to your business. This could be lunch meetings, home office rent, the business phone bill, and anything else that directly pertains to your business.
Create an expense report spreadsheet, download an expense tracker app, or use accounting software like Skynova to streamline business expenses in one place. Centralizing financial information for your business makes it easy for you to locate the information you need quickly. Getting into the habit of importing expenses as they occur rather than waiting until the last minute will save time and headaches when it's the tax season.
Another way to organize your business finances is by reconciling your bank account every month and creating an expense report. This will help you manage expenses and offer insight into budgeting and cash flow.
Use Accounting Software
Accounting software is a game changer for a lot of business owners. Self-employed individuals, freelancers, and organizations heavily rely on the functionality and time-saving aspects that these types of software programs offer. From storing receipts to creating customized invoices, accounting software can simplify and organize your business accounting and help you track expenses, in addition to saving you time.
Accounting software not only enhances efficiency and speed but also improves the accuracy of bookkeeping calculations versus pen and paper. The software program does all the calculating for you. And, with all of your financial data in one place, it's easier for you to analyze the financial health of your business, create and access up-to-date reports, send invoices, and prepare for tax season.
Skynova's software products are intuitively designed, simple, and straightforward. With the capability of running financial reports and tracking expenses, our all-in-one invoicing and accounting software can give you an accurate assessment of your organization's financial health.
Hire a Bookkeeper
Let's face it. Sometimes, you need a professional who knows the ins and outs of bookkeeping. And while the added expense may initially put you off, they can be helpful while you learn about maintaining books by catching mistakes and working faster.
Bookkeepers are uniquely qualified and understand the financial aspect of businesses. Having a financial expert on your team will help free up your time so that you can focus more on your business rather than trying to figure out accounting.
Should you hire a bookkeeper, accountant, or certified public accountant (CPA)? All of these professionals can offer you sound financial advice. It really depends on the level of service you are wanting for your business. A bookkeeper helps businesses with their books - the money that comes in and goes out. An accountant does this as well but can analyze your financial situation with more clarity. A CPA has extensively studied accounting and has received, at minimum, an undergraduate degree and licensure in their state.
Let Skynova Help You Manage Your Small Business Finances
Skynova offers 37 online software modules to help you manage your business finances with ease. Our business templates are designed to meet the demands of all types of businesses and can be used alone or in combination with each other. Some popular templates include invoices, bids, business proposals, packing slips, and order confirmations.
Keep accurate records of your income, expenses, sales tax, and payments with Skynova's accounting software specially made for small businesses like yours. With comprehensive features, including invoicing, receipt storage, financial reporting, and expense tracking, you can stay organized and simplify your business accounting.
Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always consult with a professional accountant to ensure you're meeting accounting standards.