Tracking business expenses involves taking a few steps, ranging from opening a separate account for your business transactions to integrating your accounting software with financial institutions and then regularly filing your receipts and reviewing the records from time to time. Follow the steps below to properly track your business expenses.
Step 1: Open a Business Account
The first step to keep track of business expenses is to create a business financial account exclusive to your business transactions. You’ll need to open a business checking account, a business savings account and a merchant services account (for accepting card transactions from customers). Having a separate account for your business will make it easy to handle your finances. Your business expenses will be organized in one place, making it easy to claim tax deductions.
You should obtain a separate card for business expenses so that you won’t need to keep sorting receipts. Plus, with a dedicated business credit card or debit card, your credit history is organized and accessible, which makes it easy to receive business financing and rewards, such as cash back on purchases and flight and hotel bookings.
Step 2: Choose Accounting Software
The next thing to do to keep track of business expenses is to choose an accounting software that can automate your business records and track each expense. With accounting software, monitoring and organizing your business expenses become easy. The best accounting software comes with reporting tools that provide year-to-year comparisons of your business expenses. You won’t need to spend beyond your budget to get accurate records as there are several free accounting software platforms available for businesses.
During your account setup, choose your preferred income and expense reporting method, which can be cash or accrual accounting. Cash accounting records transactions when payments are received while accrual accounting records every bill and payment received.
Step 3: Connect Your Financial Institutions
To simplify tracking your business expenses, link your accounting software to your banks. It will enable automatic download of all bank transactions and even categorize your expenses. You can also integrate other functions, including importing your daily transactions and downloading bank statements making it easy to reconcile statements.
Also, by integrating your bank accounts with your accounting system, you can complete banking transactions on your software without logging into your bank account. This synchronization enables you to spend less time keeping track of your expenses. Also, you can be assured of an accurate income and expense record since you won’t miss any transaction.
Step 4: File Your Receipts
For accurate tracking of business expenses, ensure you file your receipts as you go about your business operations. The IRS requires that you keep all paper receipts and other documents, such as bank statements, for at least three years. So, use folders to store paper receipts and remember to include the purpose of each purchase on the receipts. You can also label and arrange the folders according to their dates or categories.
Tracking business expenses has become easier, with accounting software mobile apps and business expense tracker apps you can integrate with your accounting software. These apps store receipts digitally. You can scan receipts with your phone camera and even store them in the cloud. Also, the receipts sync with your account books, making it easy to track each transaction.
Track all expenses, including your mileage, flight expenses and meals, and keep the receipts.
Step 5: Review Your Business Expenses
For proper results from tracking business expenses, review your expenses from time to time. Go over the reports—examine the numbers and analyze them. Note the trends to see how much you spend on specific areas and how the expenses accumulate. Also, correct errors and omissions.
Reviewing your business will reveal your business’s financial status and help you make relevant decisions necessary for your business growth.
