A small business will either succeed or fail depending on the efficiency of its expense tracking approach. Small businesses differ in size, frequency of income, and expense transactions.
For example, a construction business will likely have big but infrequent income and many small expenses throughout a project. On the other hand, a small retail store will likely have many small income transactions and varying expenses. In both cases, it's evident that small businesses make a lot of transactions routinely, and these transactions must be well documented.
Regardless of size, income, and expenses, though, it's important that these things are tracked and documented. This will ensure the financial stability of your business.
Running a business requires that you carry out some basic accounting tasks. However, bookkeeping can be a challenge for a lot of small business owners. After all, not every business owner has a degree in accounting or a background in bookkeeping. In this article, we'll explain what small business expense tracking is and share some best practices for ensuring streamlined tracking.
What Is Expense Tracking?
Expense tracking is the process of keeping a daily record of your expenses. This is done by documenting receipts, invoices, and other outgoing payments. It's also referred to as expense management.
Businesses make many transactions on a regular basis. Some of these transactions are fixed overhead expenses — such as paying staff salaries, property taxes, government licenses, insurance, and rent — and varied overhead costs, like travel expenses, utilities, sales commissions, and raw materials. There are also business expenses that are peculiar to certain businesses and the industry in which they operate.
The use of the word "keeping" and "record" in the above definition places an emphasis on documentation and safekeeping. This is the essence of using expense trackers, a subject we'll talk about later in this article.
Why Does Expense Tracking Matter for Small Businesses?
Managing a small business successfully requires that you maintain a decent (positive) cash flow. As a small business owner, running out of working capital can put your business out of operation, which is why you must track expenses and be in tune with your expense reports.
Keeping a record of all of your business expenses may seem like a cumbersome task. However, it's worthwhile to do so for a number of reasons. For example:
- Expense tracking helps you manage your business effectively. Keeping records of how and where you spend your money helps you be in control of your business finances. As stated earlier, a lack of cash flow can cause a business to fail. Hence, tracking your expenses will keep you abreast of the financial situation of your business. As a result, you can make better-informed financial decisions.
- It helps you make budgeting decisions and check your spending habits. Having a solid business expense report provides you with vital information about your spending habits. Furthermore, it shows you where your money is going. This information is also valuable when making budgetary considerations. Tracking your expenses informs you about expenses that need to be prioritized when making budget allocations. It can also help you check which expenses are not necessary for the financial health of your business.
- It prepares you for tax time. Expense tracking is important because businesses want to stay on the Internal Revenue Services' (IRS) good side during tax time. Tax time is always a stressful time for business owners and accountants. However, the stress occurs mostly when expenses haven't been properly documented in real time or invoices haven't been kept safe. Expense trackers do a fantastic job of keeping the details of your expenses. This is vital when calculating tax deductions.
How Do Small Businesses Keep Track of Expenses?
Small businesses track expenses in a variety of ways. While there's no one-size-fits-all method for businesses when it comes to expense tracking, there are a few best practices. In this section, we highlight some things you may want to consider adopting for your business.
- Limit business spending to one account. A good way to track your expenses is to limit all of your business spending to a business bank account. This will help you keep your business finances separate from your personal finances. Furthermore, it will ensure you have all of your transactions in one place. You can also access them online or via mobile apps and make transactions on the go.
- Obtain a business credit card. Besides having a business bank account, you might also want to get a business credit card. A business credit card will also ensure that your transactions are kept in one place and are conveniently accessible when necessary.
- Store your invoices and receipts. It's vital to obtain receipts or invoices for every transaction but also to keep them somewhere safe for easy referencing when needed. In cases where receipts or invoices are issued electronically, you can easily save them in the cloud. In the case where receipts or invoices are issued manually, you can have them kept in a file, scanned and saved on your phone or computer, and in a trusted cloud system.
- Hire a bookkeeper. As a small business owner, you have a lot of managerial duties to perform. This may limit your effectiveness with bookkeeping. Generally, a bookkeeper can help with invoicing, expense tracking, and expense reporting. You may want to hire a bookkeeper if it won't break your budget. A more affordable alternative, though, is to outsource this duty, such as through a freelancer, rather than having a full-time staff member on your payroll.
- Use accounting software or expense-tracking apps. If you are looking to improve your expense management, software programs are a must. Using an accounting system or expense-tracker app can help you automate your entire expense-tracking activities. You can regularly update your budget, record all of your expenses, or add any other relevant information. This is probably the best expense-tracking approach. Fortunately, there are a variety of accounting software options that you can choose from to track your expenses. An example of an effective and efficient business expense tracker is Skynova. Skynova's accounting software is designed with small businesses in mind, allowing you to easily track your income, expenses, sales tax, and payments.
Easily Track Small Business Expenses With Skynova
Our mission at Skynova is to simplify bookkeeping and accounting for small businesses. Imagine a digital accountant that assists you with tasks like invoicing, issuing receipts, expense tracking, and more.
In fact, Skynova's accounting software can help you do a range of accounting activities, including:
- Easily swap between cash and accrual basis
- Get a quick overview of owed and paid tax
- Get easy expense tracking and receipt upload
- Record transactions automatically
- Record manual journal entries easily
- Get financial statements fast
- Export all documents as PDFs
- Give your accountant remote access
In addition to all of these benefits, you can rest easy knowing that you don't need any prior accounting knowledge to navigate Skynova's software functionality. Similarly, you won't have to deal with books and confusing spreadsheets.
Skynova has 33 software modules online (no download necessary), all of which are specifically designed for small businesses. We also offer business templates you can use to create invoices, estimates, quotes, and more. You can even take Skynova on the go, creating and sending documents on your mobile device, whether you have an Android or iPhone.
With expense-tracking worries off your plate, you can concentrate on other business needs and be more productive.
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. You may want to seek professional advice from a professional accountant to determine a tracking approach best suited to your accounting needs.