Tracking business expenses is one of the most important responsibilities of running a successful business. If you don’t track, you don’t grow. Plain and simple. When you fail to track expenses, you lack insight into where your cash—and your company’s profitability—is going. Worse yet, if you do have a tracking system already implemented but it’s failing to track expenses properly, you’ll deal with plenty of confusing problems come tax season.
At Chaliff + Associates CPAs, we know how stressful it can be for small business owners to stay on top of expenses and budgeting. It’s hard work. But we’re here to make it easier. That’s why we wrote this blog. These tips will help you understand the fundamentals of expense tracking and the common pitfalls you need to avoid.
Right from the start, keep your personal expenses separate from your business expenses! If you’re already a business owner and don’t practice this, now is the best time to start.
Mingling your personal finances with your business creates confusion and greatly increases the chances of costly errors. We’ve worked with clients who learned this lesson the hard way and helped them figure it all out. It’s a tough hole to get out of.
If you’re guilty of this, a great solution is to open a business credit card and business checking and savings accounts. Remember, if you use 3rd party payment processing platforms, like PayPal or Venmo, don’t use personal accounts to complete transactions—you’ll need to create business accounts on those apps as well.
Now that you’ve established a business expense category, it’s time to set a realistic budget. How you do this is dependent on a few factors, like industry and business scale. Your budget goes beyond expenses, however. It’s a snapshot of your entire financial situation. Your expenses are like photographs. Your budget is an album.
Once you create a realistic budget, get to work. Keep an eye on things and monitor your expenses regularly (more on that later).
After you find areas of the budget that need to be changed, change them! Reduce bloat and trim that fat. When you have reliable data to work from, you’re empowered to make smart decisions.
Managing your time wisely is just as important as managing a sound budget. Business expenses can add up in a flash, even if you have everything organized and structured. Once you get that invoice, record it. Once you’re handed that receipt, document it. If you’re not at the point where you can hand these tasks off to someone else, develop a system that works for you. Block some time on your calendar every day or every week to go keep your books up to date and stay on top of tracking your expenses.
When you fail to be timely, expenses pile up and you’re left with even more clean-up work. Planning ahead and documenting expenses on a regular basis keeps your budget tight, your data clean, and saves you hours of work.
Here comes the fun part. You can build a good budget and track your expenses to a T, but once you have all of that information and data, what do you do with it? Well, a great place to start is by pulling regular financial reports.
Before you read on: remember to start pulling financial reports after your expense tracking system is in place. If you put the cart before the horse, you’re looking at unreliable, incorrect data that doesn’t reflect reality.
Weekly, monthly, quarterly, and annual reporting all have their own purpose and can give you insight into different areas of your business. For example, your weekly reporting will be more granular, whereas your annual report will provide a big-picture overview of your business. Each report provides a snapshot of your company’s financial health.
Managing finances for your business involves expense tracking, budgeting, documentation, and reporting. That’s a big job, especially if it’s not your main role! If your business doesn’t have a dedicated bookkeeper or administrative team responsible for these tasks, you may feel like you’re constantly playing catch-up.
Your business growth is too important to put on the back-burner. So is staying on top of your bookkeeping! We understand juggling too many priorities leaves you feeling like the work is never done. You don’t deserve to be held back by bookkeeping that needs to be done last week. Whether you’re just starting out or changing partners, you can count on Chaliff + Associates CPAs to meet your needs where you are.
Getting started is easy. Just request a complimentary consult. We’ll align on the best approach for your business and your budget.
Let us take care of the numbers. You have a business to grow.